[Senate Hearing 113-103]
[From the U.S. Government Publishing Office]








                                                        S. Hrg. 113-103


 IMPLEMENTATION OF THE BIGGERT-WATERS FLOOD INSURANCE ACT OF 2012: ONE 
                          YEAR AFTER ENACTMENT

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

                                HEARING

                               before the

                            SUBCOMMITTEE ON
                            ECONOMIC POLICY

                                 of the

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

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                                   ON

 EXAMINING THE CURRENT STATUS OF IMPLEMENTING THE FLOOD INSURANCE ACT 
           REFORMS AND THE POSSIBLE EFFECTS ON POLICYHOLDERS

                               __________

                           SEPTEMBER 18, 2013

                               __________

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



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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  TIM JOHNSON, South Dakota, Chairman

JACK REED, Rhode Island              MIKE CRAPO, Idaho
CHARLES E. SCHUMER, New York         RICHARD C. SHELBY, Alabama
ROBERT MENENDEZ, New Jersey          BOB CORKER, Tennessee
SHERROD BROWN, Ohio                  DAVID VITTER, Louisiana
JON TESTER, Montana                  MIKE JOHANNS, Nebraska
MARK R. WARNER, Virginia             PATRICK J. TOOMEY, Pennsylvania
JEFF MERKLEY, Oregon                 MARK KIRK, Illinois
KAY HAGAN, North Carolina            JERRY MORAN, Kansas
JOE MANCHIN III, West Virginia       TOM COBURN, Oklahoma
ELIZABETH WARREN, Massachusetts      DEAN HELLER, Nevada
HEIDI HEITKAMP, North Dakota

                       Charles Yi, Staff Director

                Gregg Richard, Republican Staff Director

                       Dawn Ratliff, Chief Clerk

                      Kelly Wismer, Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                 ______

                    Subcommittee on Economic Policy

                     JEFF MERKLEY, Oregon, Chairman

             DEAN HELLER, Nevada, Ranking Republican Member

JOHN TESTER, Montana                 TOM COBURN, Oklahoma
MARK R. WARNER, Virginia             DAVID VITTER, Louisiana
KAY HAGAN, North Carolina            MIKE JOHANNS, Nebraska
JOE MANCHIN III, West Virginia       MIKE CRAPO, Idaho
HEIDI HEITKAMP, North Dakota

               Andrew Green, Subcommittee Staff Director

        Scott Riplinger, Republican Subcommittee Staff Director

                        Mirvat Abdelhaq, Fellow

                                  (ii)


















                            C O N T E N T S

                              ----------                              

                     WEDNESDAY, SEPTEMBER 18, 2013

                                                                   Page

Opening statement of Chairman Merkley............................     1

Opening statements, comments, or prepared statements of:
    Senator Heller...............................................     3
    Senator Tester...............................................     4
    Senator Warren...............................................     5

                               WITNESSES

David Vitter, U.S. Senator from Louisiana........................     6
Mary Landrieu, U.S. Senator from Louisiana.......................     7
W. Craig Fugate, Administrator, Federal Emergency Management 
  Agency, Department of Homeland Security........................     9
    Prepared statement...........................................    48
    Responses to written questions of:
        Senator Heller...........................................   101
        Senator Schumer..........................................   104
        Senator Tester...........................................   115
Alicia P. Cackley, Director, Financial Markets and Community 
  Investment, Government Accountability Office...................    30
    Prepared statement...........................................    53
    Responses to written questions of:
        Senator Tester...........................................   115
Christine Shirley, National Flood Insurance Program Coordinator, 
  Planning Services Division, Oregon Department of Land 
  Conservation and Development...................................    32
    Prepared statement...........................................    70
Steve Ellis, Vice President, Taxpayers for Common Sense..........    34
    Prepared statement...........................................    74
Birny Birnbaum, Executive Director, Center for Economic Justice..    35
    Prepared statement...........................................    80

              Additional Material Supplied for the Record

Statement of the Independent Community Bankers of America, 
  submitted by Chairman Merkley..................................   117
Statement of Representative C.W. Bill Young of Florida, submitted 
  by Senator Heller..............................................   119
National Flood Insurance Fund Operating Results Summary submitted 
  by Senator Landrieu............................................   128
Statement submitted by the National Association of Realtors......   130
Statement submitted by the National Association of Home Builders.   135
Letter submitted by Brad Thaler, Vice President of Legislative 
  Affairs, National Association of Federal Credit Unions.........   140

                                 (iii)

 
 IMPLEMENTATION OF THE BIGGERT-WATERS FLOOD INSURANCE ACT OF 2012: ONE 
                          YEAR AFTER ENACTMENT

                              ----------                              


                     WEDNESDAY, SEPTEMBER 18, 2013

                               U.S. Senate,
                   Subcommittee on Economic Policy,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Subcommittee met at 2:43 p.m., in room SD-538, Dirksen 
Senate Office Building, Hon. Jeff Merkley, Chairman of the 
Subcommittee, presiding.

           OPENING STATEMENT OF CHAIRMAN JEFF MERKLEY

    Chairman Merkley. Good afternoon. I call to order this 
hearing of the Economic Policy Subcommittee of the Senate 
Committee on Banking and Housing. Welcome, everyone. We will 
have opening statements, limited to 5 minutes or less, and then 
we will proceed with our first panel, and we are so delighted 
to have both Senator Vitter and Senator Landrieu here to share 
their insights on the challenges that are occurring in the 
State of Louisiana.
    As a Nation, we are constantly reminded about the loss and 
damage caused by flooding, and the recent events in Colorado 
highlight the flooding and how it is affecting communities all 
across our Nation. And my thoughts are with the families and 
the communities in Colorado at this moment.
    Historically, flooding has been the most common and costly 
natural disaster. We see and hear the stories of flooding along 
river banks and along coastlines in all parts of America. We 
have seen flooding events become more severe as storms 
intensify and storm surges increase, leaving untold destruction 
in their wake.
    Currently, about 50 percent of the Nation's population 
lives along the coast or in floodplains, and this number is 
expected to grow. Thus, the impact of storms on our communities 
is also likely to grow.
    In 1968, Congress enacted the National Flood Insurance Act, 
which established the National Flood Insurance Program. NFIP 
provides property owners in floodplains with an opportunity to 
purchase insurance, and over the years, the program has 
expanded. There are now 22,000 participating communities with 
5.5 million policyholders, including $1.3 trillion in property 
and contents. However, NFIP has also suffered many years of 
catastrophic losses and is $24 billion in debt.
    Last year, Congress enacted sweeping reforms to NFIP, 
commonly referred to as the ``Biggert-Waters Flood Insurance 
Act.'' Folks may remember that this was added in conference to 
the MAP-21 transportation bill.
    In order to make the program financially sound, insurance 
rates were restructured by establishing a schedule to phase out 
subsidies for certain homeowners. Moreover, the flood maps are 
being redrawn in many communities, resulting in mortgage 
companies requiring many families to buy flood insurance for 
the first time.
    These two factors working together are really the reason 
that we are here today. We are holding this hearing for 
Senators to better understand the challenges of how these two 
circumstances are impacting ordinary families. Here are a few 
of the concerns.
    First, unaffordable flood insurance. Many insurance 
policies that were previously $300 to $500 a year are now going 
up to several thousand dollars a year. And there are a whole 
bunch of folks who are buying homes between July 6th of last 
year and October 1st of this year who are getting a subsidized 
rate, and it is my understanding when they renew that they are 
going to have a big surprise because they will get an 
unsubsidized rate that may be a manifold increase.
    A second significant problem is forced placement insurance. 
Many Oregonians who have been previously told by their lenders 
that they are not required to have flood insurance are now 
being told that they need to have that insurance, either 
because mapping has placed them into a floodplain or because 
mortgage companies that were not enforcing this standard are 
now enforcing it, in part because the bill that was adopted 
last year has higher penalties for not enforcing.
    Carol from Cornelius, Oregon, purchased her home in 2005, 
reassured by a realtor that she would not need flood insurance. 
She received a letter from her mortgage company earlier this 
year informing her that if she did not buy insurance, they 
would place a $1,200 policy on the property. She is in the 
process of challenging this, but is forced to pay during the 
process of appealing the situation.
    And one of the things we have to look at on force-placed 
insurance is whether or not there are abuses in that category 
in terms of very high rate policies with subsidies paid back to 
the mortgage servicers.
    A third issue is the inability to sell a home. Take Carl 
Hay of Eagle Creek. Mr. Hay and his wife have been unable to 
sell their home and have had potential buyers withdraw their 
offer after learning that flood insurance will increase tenfold 
to $5,000 annually upon the sale of their home. Buyers are not 
protected by the same 20-percent cap that exists for 
homeowners.
    Fourth, the challenge to the homeowner of obtaining 
accurate flood risk data. If a homeowner is challenging the 
fact that they have been described as being in a floodplain and 
the mortgage company thinks otherwise, the homeowner carries 
the burden of proof, and this can be expensive, costing between 
$500 and $2,000 to get a survey. And while such proof is being 
provided and acceptance of it is being sought, the homeowner 
must continue to pay.
    Now, in addition to these problems facing the homeowners, 
many communities are having great difficulty with the challenge 
of securing accurate information for flood maps, which raises 
another set of issues. The 2012 NFIP bill has a number of 
features designed to address this challenge, and hopefully 
today we will hear a little bit about the progress in this 
regard. Some of those include a requirement for the agency to 
establish a technical mapping advisory council and an 
independent scientific resolution panel.
    There is also a feature in Biggert-Waters to establish a 
flood protection structure accreditation task force. We would 
like to hear if this is set up and what value it is bringing to 
the process.
    FEMA and the U.S. Army Corps are required to form a task 
force to better align the data the Corps is collecting during 
levy inspections with the data required under FEMA's 
accreditation program.
    Also, Biggert-Waters requires FEMA to provide flood 
insurance to people living behind a levee that is undergoing 
construction or improvements at the same rate or the same 
premium price as those who reside behind a completed levee. 
Again, it will be interesting to know if this has gone into 
effect and is helping.
    I look forward to all of the insights that our witnesses 
have, both on the challenges faced by the homeowners and the 
challenges faced by communities in obtaining and using accurate 
maps.
    And I am so delighted that Cochair Heller is here today, 
and it is now your turn to give some comments.

                STATEMENT OF SENATOR DEAN HELLER

    Senator Heller. Chairman, thank you. Like the Chairman, I 
want to start off by saying that my thoughts and prayers are 
with the citizens of Colorado who are dealing with the 
devastating flooding within their communities, and I wish to 
thank all the first responders and rescuers involved and hope 
that all those who are affected can recover as soon as 
possible.
    Unfortunately, the flooding in Colorado demonstrates the 
importance of this hearing. I think almost everyone here would 
say that when they think of Nevada, flooding is not usually 
something that comes to mind. While wildfires are often our 
most dangerous natural disaster, in several parts of Nevada 
flooding is a very serious concern, especially when heavy rains 
or snow melts occur.
    Just to give you an example, in Reno, Nevada, the Truckee 
River has continually flooded its banks, causing tremendous 
damage to residents, businesses, and infrastructure. None of 
the citizens of northern Nevada will forget the 1997 flood that 
put downtown Reno under several feet of water, with damages 
exceeding $1 billion over six counties.
    In response to this flood, local communities and 
stakeholders, in partnership with the U.S. Corps of Engineers, 
have been working on measures to reduce future flood damages, 
restore miles of river wildlife habitat, and provide safe open-
space amenities in the region.
    Now, as we have seen from flooding in the Midwest to 
Hurricanes Katrina, Rita, and Sandy, flooding is the most 
costly and prevalent natural disaster risk in the United 
States. Many communities remain at serious risk of flooding, 
which threatens lives, property, and the economy.
    I have always said that one of the most important roles the 
Federal Government plays is providing responsible safety nets 
for those who fall on hard times, and flood insurance is a 
critical safety net for many Americans who are victims of 
flooding disasters.
    As we all know, for years Congress struggled to strengthen 
the financial solvency of the National Flood Insurance Program, 
which is billions of dollars in debt. With the passage of 
Biggert-Waters last Congress, new key reforms were enacted to 
try to avert the need for a taxpayer bailout. Today many 
communities and individuals are experiencing these new reforms 
for the first time. Now is the time that Federal agencies like 
FEMA must be open and transparent with accurate information for 
the American public about the implementation of these reforms.
    I appreciate Administrator Fugate's willingness to address 
some of the concerns that many Americans have been voicing, and 
I want to thank all of our witnesses for being here today, 
including Senators Vitter and Landrieu, to share their 
experiences and to offer their thoughts on how to provide the 
best flood insurance policies for the American public.
    Mr. Chairman, thank you, and I look forward to hearing all 
the testimonies from our witnesses.
    Chairman Merkley. Thank you.
    Senator Tester.

                STATEMENT OF SENATOR JON TESTER

    Senator Tester. Well, thank you, Chairman Merkley. I, first 
of all, want to thank Senators Landrieu and Vitter for being 
here, and I look forward to your testimony and that of Mr. 
Fugate later on.
    I would just like to say that, you know, we have been here 
before. Last year, Senator Vitter and I worked on a flood 
insurance bill with some certain parameters around it. Those 
parameters were to make sure that the Flood Insurance Program 
was actuarially sound. It was in the hole. It continues to be 
in the hole. And hopefully this bill, if implemented as 
intended, will help get the flood insurance back on sound 
ground without having to be bailed out with taxpayer dollars 
and increasing the liability on taxpayers.
    That comes about with a price, and that price, especially 
with the regularity of major disasters in this country, is who 
pays the bill. Is it the Federal Government? Is it the 
taxpayer? Is it the property owner? And we tried to find the 
sweet spot in that, and we tried to level out the premium 
increases so that they did not hit all at once.
    But the bottom line is that, as a body, we have to make a 
determination at what level are we going to subsidize flood 
insurance. And if we are not going to subsidize it at all, with 
the regularity of disasters, it is going to cost the premium 
payer a lot of dough. And if we are going to subsidize a 
little, it will help reduce that. If we subsidize a little 
more, it will reduce it some more.
    So the bottom line is I think we all want something that is 
going to work and does not break the bank on folks who live in 
areas that are susceptible to flood, and work on this issue 
together as we move forth.
    On the other hand, we have got to figure out what role the 
Federal Government is going to play in this, too.
    Thank you, Mr. Chairman.
    Chairman Merkley. Thank you.
    Senator Warren, do you have an opening statement?

             STATEMENT OF SENATOR ELIZABETH WARREN

    Senator Warren. I will just be brief. Thank you. Thank you, 
Mr. Chairman.
    You know, I understand why it is important for flood 
insurance rates to reflect the real risks and the costs of 
flood damage. I get this. And I understand why we want our 
flood maps to represent the best scientific data available, 
including the latest evidence of climate change. And over time, 
I agree that it makes sense for us to move to a market-based 
system for setting flood insurance rates, provided we 
adequately take into account affordability concerns for low-
income families. I get this.
    I have more trouble understanding, though, why it has made 
sense for FEMA to implement various new rules at the same time 
that they are updating the flood insurance maps. When FEMA put 
out the new flood maps this year and last year, they placed 
hundreds of thousands of homeowners into a flood zone for the 
very first time, and so now there are thousands of people in 
Massachusetts, thousands of homeowners, who are suddenly being 
asked to pay thousands of dollars in premiums that they had 
never been asked to pay before. And many of these homeowners 
are dealing with new and unexpected costs. Many have no good 
options available to them.
    One Massachusetts resident wrote to me and said, ``I am 70 
years old. I live on a fixed income, and I am unable to pay the 
proposed flood insurance.''
    That constituent and many others have said they do not know 
what to do.
    So I am here today. I am very glad to have the opportunity 
to hear from Senator Landrieu, to hear from Senator Vitter, to 
hear from my colleagues and others who will be here to testify. 
I think we all know where we are trying to get, but I think 
there is a question about the path getting there. So thank you 
very much for being here.
    Thank you, Mr. Chairman.
    Chairman Merkley. Thank you, Senator.
    I am particularly delighted that our first panel involves 
two of our colleagues who have been very engaged in this topic. 
Senator Vitter, thank you for your conversations that we have 
had that were very encouraging in terms of holding this 
hearing, and I look forward to your testimony.
    And, Senator Landrieu, you have been passionately engaged 
on this, including getting David Miller, the head of NFIP, down 
to understand directly what is going on with Louisiana 
communities. I was there on the Senate Appropriations Committee 
when you laid out your proposal to grandfather properties and 
certainly the introduction of the Strengthen, Modernize, and 
Reform the NFIP Act that I hope you will be able to say a word 
or two about.
    And so thank you both. I know this is certainly a huge 
issue in Louisiana, and so much to look forward to, to your 
thoughts and insights. Senator Vitter.

     STATEMENT OF DAVID VITTER, U.S. SENATOR FROM LOUISIANA

    Senator Vitter. Thank you, Mr. Chairman and Ranking Member 
Heller, for agreeing to this hearing, and thanks to all the 
Members here. Senator Landrieu and I really, really appreciate 
it.
    I also want to recognize and thank several elected 
officials and community leaders here from Louisiana. But in 
doing so, I know we both want to emphasize that this is not 
some parochial Louisiana issue. This is a national issue, be 
assured. We might be feeling it first. More of our people might 
be experiencing first. But this movie is coming to a theater 
near you, and it ``ain't'' a good ending right now. And so we 
need to really get ahead of that curve and discuss and fix this 
problem.
    I also want to thank Administrator Fugate for being the key 
witness of this hearing, and I am hopeful that with his 
presence this can be a truly substantive discussion that 
actually advances the ball down the field and is not just a lot 
of talk.
    You know, we all knew what the discussion was when we were 
debating Biggert-Waters, and Senator Tester is right. We all 
expected some premium increases. We know that is necessary to 
make the system fiscally sound. But, quite frankly, what we 
have been told to expect since then is a completely different 
planet in some cases.
    Before the fact and before the debate and the vote, we had 
several studies--and I have the citations here from Senate 
committees, GAO reports--that basically suggested that 
properties that were subsidized under the Flood Insurance 
Program might be subsidized up to 50 percent or 40 percent or 
55 percent, those that were subsidized, and that was a 
minority. You know, to deal with some modest premium increases 
over time, to deal with that situation, and make the program 
fiscally sound is one thing.
    Since Biggert-Waters has started to be implemented, we are 
hearing something dramatically different. We are hearing that--
and my constituents and Mary's constituents are specifically 
hearing that they could face a premium increase from $633 a 
year to $28,544 a year for a policy worth $250,000.
    Now, that is not just made-up numbers. That is Bill Bubrig, 
a resident of Plaquemines Parish. He lives in a home that was 
constructed at or above the elevation he was told he needed at 
the time. He followed all the rules at the time. He followed 
those rules, and that is what he is now being told that he 
might expect.
    Now, one thing I hope this hearing gets to is exactly what 
he can expect because, quite frankly, in Administrator Fugate's 
written testimony, I think he is again downplaying the possible 
impacts. He is talking about some rates in Louisiana reaching 
as high as $10,000. Well, his FEMA employees have told many of 
our constituents to expect something way beyond that. So I hope 
we can clarify that.
    Several weeks ago, on August 8, we did have a productive 
visit from David Miller and others at FEMA to south Louisiana 
to talk about just this, and it was productive. I asked David 
three questions then, and I told him they would be my three 
main and first questions to Administrator Fugate. And I think 
they are the three questions we need to start to get answers 
on, and so the Administrator has had well over a month's 
notice, and I want to lay those questions out.
    Number one, the President has delayed major parts of 
Obamacare because they are not ready for prime time for 
implementation. So will the Administration and FEMA delay 
Biggert-Waters or at least major portions of Biggert-Waters for 
at least a year? Because it is clearly not ready for 
implementation.
    Number two, will FEMA agree to halt releasing new flood 
insurance rate maps until issues involving their accuracy, 
properly taking into account all flood features, are completely 
worked out?
    And, number three, will FEMA join Members of Congress, 
including everyone in the Louisiana delegation, and proactively 
promote solutions to the affordability issue? That is key, and 
we need help and leadership from FEMA. We are doing that. Many 
members are doing that. We need FEMA to do the same.
    I will stop here and certainly look forward to expanding on 
those thoughts in our discussion.
    Chairman Merkley. Thank you.
    Senator Landrieu.

    STATEMENT OF MARY LANDRIEU, U.S. SENATOR FROM LOUISIANA

    Senator Landrieu. Thank you, Mr. Chairman. I have a long, 
detailed statement I am going to submit, and I am going to try 
to summarize the highlighted points in addition to what Senator 
Vitter has highlighted.
    First, let me thank you for agreeing to have this hearing 
to begin the discussion to fix Biggert-Waters, to either repeal 
it, radically amend it, delay it, because we need help--not 
only in Louisiana but in many, many, many places in this 
country, not only along the coasts but as we all marked this 
morning the tragedy that is unfolding right now in Colorado and 
what happened most recently in Massachusetts, New York, and New 
Jersey.
    Twelve days from now, FEMA will begin the process of 
increasing insurance rates on hundreds of thousands of 
homeowners and small businesses across the United States as a 
result of legislation that Congress passed without, in my view, 
full consideration of the potential impact that skyrocketing 
rates might have on families, small businesses, home sales, 
property values, local economies, or continued participation in 
the program. Good intentions to make the program self-
sufficient, wholly inadequate data about the loss of 
affordability to the program, which is hitting us hard, hitting 
us right away, and devastating to our communities.
    Both Biggert-Waters and the companion Flood Insurance 
Reform and Modernization Act that cleared this Committee 2 
years ago in my view were built backwards and upside down. They 
authorized immediate rate increases on homeowners and 
businesses that played by the rules, did everything asked of 
them, before they even began to study the impacts these rate 
increases would have on affordability.
    Let me mention two things about affordability. One, when 
this bill was debated in the House last year, there was an 
amendment offered by a Member of the House that was voted down 
by voice vote that would have required at least some vouchers 
for low-income and middle-income families that are going to be 
affected not only in Louisiana but Massachusetts. But let me 
say for the record, middle-income families, even some at the 
high end of the middle class, are going to have a hard time 
accepting the new rules and regulations coming from this bill.
    There are 17.4 million households that live in Special 
Flood Hazard Areas where flood insurance is mandatory, but the 
question is: How many are going to, Senator Tester, be living 
in areas that are not special flood hazard but will flood, have 
flooded, can flood, and flood insurance is not mandatory, but 
they are going to be facing some rate increases as well?
    Let me talk about the home trigger sale, which is very 
important, and this was in both bills. One of the most 
problematic provisions in Biggert-Waters, in both bills, is a 
requirement that under Section 205 any property purchased after 
July 6th of last year will immediately lose its entire subsidy 
on the active sale, penalizing homeowners who are buying these 
homes that had no way of knowing it; but, more importantly, in 
my view, penalizing the homeowners themselves who are without 
the ability to sell their homes now after July 6th without 
losing a substantial amount of their entire life equity.
    I want to get us beyond premium increases into the fact 
that when you lose your subsidy on your home, which is your 
largest asset, you basically lose the majority of your wealth 
accumulated over a lifetime because of this bill. It was 
premature. It was not well thought out. It must be fixed.
    Two of my constituents, Penny and David Boquia, bought a 
home in Baton Rouge on August 23rd. They were told they would 
maintain the seller's flood insurance at $650 a year. One week 
later, on August 30th, they received a letter notifying them it 
would go up 400 percent $2,500. That is an example of what 
happens to homeowners. But basically many of our folks are just 
saying they cannot put their homes for sale; they have no 
value.
    All right. The catastrophic flood losses that occurred--and 
I want to submit this for the detail, and thank Michel Claudet, 
who is the president of Terrebonne, for bringing this to my 
attention. I kept hearing and hearing the program is 
underwater, underwater, underwater by $20 billion. I just 
assumed. I should have looked. The truth of the matter is that, 
before Katrina, this program was fairly actuarially sound, and 
you can look at the numbers yourself. What sticks out is, at 
Katrina, it was a $16 billion hit to this program. Katrina was 
the biggest natural disaster ever to hit the United States in 
the history of our country. It rocked everything. So what we 
did was we took this outlier year, $16 billion, and then 
reflected that loss, you know, I think prematurely forward, and 
created a program that is now not self-sustainable, not 
affordable to even middle-class families, businesses, and we 
have got to fix it.
    Now, in closing, maybe FEMA can do some things to delay it. 
I hope they can find a way. I am very frustrated with them, as 
Senator Vitter is, for not finishing their affordability study. 
They say you all did not give them enough money, $750,000; they 
needed more time, they needed more money. I do not buy that 
excuse. But, anyway, there was no affordability study done.
    I am going to put the rest of my comments into the record, 
but we have got to, you know, push back, reform, repeal, this 
flood insurance, get a better approach that works not just for 
Louisiana, the gulf coast, and coastal, but for everyone in the 
country. You know, whoever was to blame, let us forget about 
that, but let us move on together to try to fix it. And I know 
this Committee had good intentions, believe me. I have been 
here long enough to know the Members on this Committee on both 
sides. But we made a mistake, and we have got to fix it. And I 
wish it could be fixed administratively. Maybe it can. But I 
think it may need some action by this Committee. And, Chairman 
Merkley and Senator Tester, I am so grateful, and Senator 
Heller, for your at least openness to consider some of the 
testimony you are going to hear today.
    Thank you so much.
    Chairman Merkley. Thank you both very much for your 
testimony, and you are both invited to join us here on the 
panel.
    With that, we will ask Administrator Fugate to join us up 
front.
    Mr. Fugate. Mr. Chairman, Senator Heller----
    Chairman Merkley. Thank you very much for joining us, 
Administrator, and I will just do a brief introduction and then 
ask you to jump in, and we particularly appreciate your 
attendance today given the disaster in Colorado. I know you 
have worked very hard to try to make sure that everything was 
attended to so that you could be here with us for this 
conversation.
    William Craig Fugate was confirmed by the U.S. Senate and 
began his service as Administrator of FEMA in May 2009. At 
FEMA, he has promulgated the whole-community approach to 
emergency management, emphasizing and improving collaboration 
with all levels of Government and external partners, including 
voluntary agencies, faith-based organizations, the private 
sector, and citizens. Prior to coming to FEMA, he has served as 
Director of the Florida Division of Emergency Management.
    We very much look forward to your testimony, and, again, 
thank you so much for coming.

STATEMENT OF W. CRAIG FUGATE, ADMINISTRATOR, FEDERAL EMERGENCY 
       MANAGEMENT AGENCY, DEPARTMENT OF HOMELAND SECURITY

    Mr. Fugate. Well, thank you, Mr. Chairman, Senator Heller, 
Senators.
    I think Senator Tester started out with--I want to take a 
step back. Why we are in flood insurance in the first place? 
What is the purpose of it? And how did we get here?
    Flooding in the 1940s and 1950s was so significant that 
ultimately the private sector insurance companies no longer 
provided coverage, and that created huge exposure for the 
financial market for mortgages.
    In the 1960s, Congress determined to form a capability to 
provide that insurance to ensure those mortgages were protected 
against this risk, this singular risk that the private sector 
no longer would provide coverage to.
    Until about 1979, the program actually was operated by a 
consortium of companies that they managed the program, and at a 
point where losses were greater than their ability to cover, 
appropriations were made by Congress to pay the difference.
    In the 1970s, the decision was made for the Federal 
Government to take over the entire program and provide those 
coverages and provide the maps and other tools to implement the 
program in one National Flood Insurance Program. At that point 
the Federal Government was now not only providing the 
catastrophic coverage but the day-to-day coverage. And the 
history of the program was that in catastrophic losses, the 
program was not determined to be able to cover those. 
Appropriations would be made, but the actuarial rates that were 
charged and the primary tool here was actually land use and 
growth management. So as new homes were built, they were built 
to reduce future risk. That was the real importance of the 
maps, to establish a base flood elevation that, if you built 
above that, would significantly reduce the risk to the 
communities in the future.
    So one element of this is, to participate in the programs, 
communities have to adopt land use ordinances and building 
codes for new and future construction based upon best available 
data.
    Now, as this program came about, obviously there were very 
little areas that were mapped, and so in order to provide the 
opportunity to get people insured--and these are oftentimes 
referred to as ``pre-FIRM,'' ``pre-map,'' ``pre-flood'' 
insurance rate maps--many people were brought in at rates that, 
as new data came up, decisions were made to grandfather them 
and hold them at their pre-FIRM rates.
    So as map changes would occur, if you maintained your 
current policy, there was no change to those rates. That led to 
some interesting outcomes that we have started seeing 
repetitive loss properties that would literally be paid out 
every couple years. But there was no incentive for people to 
make any changes because their rates were so low. So one of the 
things in Biggert-Waters was to address should we continue to 
subsidize the repetitive loss properties.
    Another concern was there was a lot of secondary homes that 
we were providing very good insurance rates to. The question 
then became, which Biggert-Waters addressed: Should we 
subsidize somebody's vacation home? And the answer was no, and 
starting January 1st of this year, as you renew your policy, if 
you have a secondary property, you are going to a full 
actuarial rate.
    But then it gets into how do you cover these catastrophic 
disasters. I think we have seen the program grow, but so has 
the exposure. Right now our exposure, total policies, is $1.28 
trillion. Now, there are no disasters that are ever going to 
get to that point, but there are some areas along our coast--
Florida in particular, Houston, New York, New Jersey--that have 
exposures that in a Category 2 or Category 3 storm would be 
even greater than Katrina, Senator Landrieu, potentially, and 
some of those again hitting those $16 to $20 billion exposures.
    So in trying to move to a more actuarially based rate, we 
also have this other issue, which I think the Senators are well 
versed in. Is it public policy, is it the intention to fully 
charge the rate for a primary homeowner to the point where they 
cannot afford their home? Or should it be the public policy 
that we have determine an ability to pay on affordability? And 
recognizing some people who live and choose to live in areas 
may be able to afford those actuarial rates that can be very 
expensive. But should people who have lived their all their 
lives, who are middle class, be priced out of their homes? And 
I do not agree.
    But to get to Senator Vitter's first question, I have found 
very little leeway, as much as I have tried, in how we can 
address affordability under the current provisions of the law 
as enacted. And so I look forward to the questions, Mr. 
Chairman. I fully believe we should stop subsidizing risk as we 
go forward for new construction, for secondary homes, and for 
businesses. But I think we need to look at affordability for 
people who live there, look at how we can mitigate the risk in 
the future, and not grow our risk at the same time, not putting 
people out of their homes because flood insurance is 
prohibitively expensive.
    Thank you, Mr. Chairman.
    Chairman Merkley. Thank you very much for your testimony, 
and we are now going to have a period of 5 minutes. And just to 
let folks know, according to how the staff has documented 
arrivals, after I ask questions and Senator Heller asks 
questions, it is Senator Warren, Senator Vitter, Senator 
Tester, Senator Schumer, and then Senator Heitkamp. And Senator 
Landrieu, whom we do not have on the list yet. Thank you.
    Could you address first this issue of the affordability 
report that was required? FEMA was directed, I believe, in the 
legislation to advise Congress on the affordability of flood 
insurance and problems that might arise in that regard within 
270 days, which would have been April 6th of this year. I 
understand FEMA has now said that it will take 2 more years, 
until 2015, to do this affordability report. Clearly, you can 
see from the many comments and concerns and questions, 
affordability is at the heart of many of our concerns. So if 
you could explain why the 270 days was not achievable and 
whether something in the nearer future rather than 2015 might 
be possible.
    Mr. Fugate. Mr. Chairman, we approached the National 
Academy of Science to conduct a study. Their initial response 
back to us was that, given the amount of money and the time, 
they could not do a complete report. And I guess this is as 
most succinctly as I can. The challenge is on those homes that 
are what we call pre-FIRM, there was never any elevation 
established. There was never any elevation required. So we do 
not know what the costs are. And one of the examples given of 
how they calculated this actuarially, as our team has built 
those tables, if you are at base flood elevation and you have 
maximum contents in a $250,000 home, it is about $1,600. If you 
are 4 feet above that, it drops to 400--about $500, I am sorry. 
If you drop to 4 feet below that, you get $10,000. And for 
every 4 feet you go down below base level elevation, it 
basically doubles.
    So as Senator Vitter points out, you can very easily get to 
these very high numbers if you are in an area of significant 
risk that you were built part of that. But without that data, 
without those elevation certificates--and that is, we are 
finding out as one of the things. You cannot really get the 
calculation on a per house basis of what this number looks 
like. And so part of this is getting that kind of data and 
resolution to make those calculations is what we are getting as 
one of the reasons it is going to take longer and more money.
    The other parts of the economic stuff, we have already 
started the process to give us at least what does the framework 
of this look like and what are the elements that they would 
need to calculate the affordability. But as we understand it, 
knowing base flood elevations, since those do not exist for the 
most of the pre-FIRM homes, makes it extremely difficult to 
just calculate what that looks like.
    Chairman Merkley. So I would toss out the idea that I will 
be happy to follow up with subsequent to this hearing that 
perhaps there is a lot of work that could be done in the near 
term just by understanding the case stories that we are hearing 
back from folks about the challenges. For example, a family in 
which a corner of their property is in the flood zone and so a 
mortgage company concerned about the fees that would be charged 
to them is insisting on flood insurance even though the house 
is not in the flood zone itself, that is certainly one example. 
And there are many others that I have been hearing from 
different corners of Oregon. Certainly perhaps even a 
compilation of the categories of concerns that are flowing in 
would be very useful for our consideration of changes that we 
might need to make in the law, and kind of in this regard, the 
sooner the better.
    Let me turn to FEMA has outlined new procedures to produce 
flood insurance rate maps while incorporating partially 
accredited levees, and I do not want to ask you to spend a lot 
of time on this, but is there any progress in that pilot 
program?
    Mr. Fugate. Yes, sir. We are in the pilot phase right now. 
We are working with several communities across the country, 
several in Louisiana, working on now taking the tool that we 
built to update the maps, working with the local community, and 
calculate the value. Senator Vitter, Senator Landrieu, and 
others have pointed out that our previous policy was, even if 
you had a levee, if it was not accredited, we basically took it 
out and said there was no structure there. We now have the 
tools to build it back in. We are working with the local 
communities as we use that tool, and we update their maps and 
show them what this looks like, because part of this will also 
be, as these results come back, in doing mapping there is a lot 
of the interaction with the local officials as they look at 
that data and go but have you looked at this, and there is 
other data so we get the best outcome of looking at the 
structure.
    So we are in that process in the pilot phase, and from that 
that would be the point that would generate the formal 
rulemaking once we see that we have the ability to do this tool 
and get the results that local communities and others are 
looking for.
    Chairman Merkley. Thank you. I have many more questions, 
but I am going to be fairly strict about the time so that 
everybody can get their thoughts in. So we will turn to Senator 
Heller.
    Senator Heller. Chairman, thank you. Mr. Fugate, thank you 
for being here today.
    I have heard the word ``mitigation'' several times already 
in testimony. Besides elevation, what is another form of 
mitigation that a homeowner can use or provide to reduce 
insurance costs?
    Mr. Fugate. Well, this is not mitigation, and there is a 
cost to the homeowner because the program does not have the 
ability to provide it. But that is getting an elevation 
certificate, and that will be one of the challenges, because it 
does cost, and it can run anywhere from a couple hundred 
dollars to several thousand dollars, depending upon what you 
have to do to get that survey done.
    But that will then be the point at which if you are at or 
above base flood elevation, you would see discounts in what 
these proposed rates would be. The elevation, again, something 
that we have seen and used quite a bit post disaster, but also 
you gave us additional tools within the National Flood 
Insurance Reform Act to do two things: elevations but also 
buyouts, offer some homeowners, particularly after a 
devastating flood--it may be the option that they do not want 
to rebuild there, yet they cannot really sell their property 
and it is destroyed, the opportunity to buy out. This is being 
used rather successfully in parts of the country, including in 
the Northeast after Sandy, to take some of the most vulnerable 
areas and buy those properties out, turn it into greenspace, 
and give people the resources to move elsewhere and reestablish 
their homes.
    Senator Heller. With the discussions that we had on the 
first panel and Members of both the Senate and the House, and 
the number of calls they get--and, again, even Nevada, I 
receive phone calls on this particular issue--it seems to me 
that there are so many numbers bouncing around. When a 
homeowner testified earlier, when numbers are thrown out like 
$28,000 a year, it just seems like there is a big 
communications gap between what your administration is doing 
and being able to educate and spend time with the citizens and 
letting them know what their options are.
    What are we doing to enhance the communications?
    Mr. Fugate. Well, since the primary point of information of 
determining your rate is going to be the Write-Your-Own 
insurance agent, we have been working to get all of that 
training done and get them up to speed. I think right now we 
are over 8,000 that have been trained, because Senator Vitter, 
rightly so, said, you know, we are putting a lot of information 
out there prematurely, and until you get the actual actuarial 
tables done which have been completed, the Write-Your-Own 
agents then have to get the elevation of the home and knowing 
what that elevation is, where the map is, then they have the 
ability to then calculate the rate. And it is, as has been 
pointed out, can be substantial if your home was built below 
the current base flood elevation, either because you have new 
map data or when you were brought in pre-FIRM, there was never 
any requirement to have an elevation certificate.
    But those are the two pieces that actually calculate an 
individual homeowner's rate: an elevation and the tables that 
have been generated.
    And so part of this has been to communicate that part to 
the agents, work with the communities and States, but now as we 
go through this process, making sure that that information is 
out there both to local officials as well as to the public, 
that that will be the process.
    Now, for people that have secondary homes, they are already 
getting those rates adjusted. Again, that started in January, 
and you will continue to hear from constituents because it will 
be when they renew that they get their increases. So we started 
in January, but it will probably be for the full year before 
everybody has seen that on a secondary home.
    Senator Heller. Thank you.
    Mr. Chairman, I have additional questions, but I will wait 
until the second round.
    Chairman Merkley. Senator Warren.
    Senator Warren. Thank you, Mr. Chairman.
    Mr. Fugate, I just want to go back and make sure I 
understand this. What kind of outreach did FEMA do before it 
released the new maps or as it was releasing the new maps to 
tell homeowners who had never before been in flood zones that 
now they were going to end up in flood zones.
    Mr. Fugate. Well, community by community, when we go into 
update maps--and there is usually either we have a map that is 
old that we have new data, we have been requested by the 
community, or we have had a disasters, and disasters have been 
prioritizing a lot of that. We start our conversations with the 
community itself, the Government that is responsible for that 
jurisdiction. This process is actually a several-year process, 
that we start with them, we get the best available----
    Senator Warren. So you talk to the mayors? I just want to 
make sure I am following. You talk to the mayors, you talk to 
the county officials.
    Mr. Fugate. Yes, ma'am. We send a notification. Oftentimes 
the people we are working with are the public works, utilities, 
or whoever the land use management agency is. And then we work 
with them in developing the scoping of the maps, the areas we 
are going to look at to update any additional concerns they 
have. If they have data or newer data, FEMA contracts with 
engineering firms that then update those maps.
    We do a series of preliminary maps. You may hear the term 
``pre-FIRM,'' a pre-Flood Insurance Rate Map, that we then go 
back to the community. They do notices. Oftentimes, though, 
this process, even though there is a public notices and there 
is outreach, most people do not pay too much attention to it 
until they see that their status has changed.
    That is why we do the hearings. We provide that 
opportunity. At that point, if new information is given, we are 
able to take a look at that. We have had several where we have 
issued pre-FIRMs. Members of the communities have questioned 
the data. We got new data.
    This process can take 2, 3 years, and then the community 
has to--the local officials, to make the maps official--FEMA 
cannot make the maps official, but to make them enforceable, 
the local government has to vote to adopt the maps as part of 
their ordinance.
    Senator Warren. So let me follow up to make sure that I am 
tracking on this. So when someone discovers that, because of 
the map, they are now in a flood zone, they had not been in a 
flood zone before, I understand that there is an appeals 
process for that.
    Mr. Fugate. Yes, ma'am.
    Senator Warren. Can you tell me how many people have 
appealed their status in a flood zone? Do we know yet? Do we 
have any idea?
    Mr. Fugate. I would have to respond for the record to that. 
I know it is in the hundreds, if not thousands. But I would 
have to go back, because we do so many maps across the country, 
and they are in all phases of production. Some are preliminary, 
some have already been in the pre-FIRM. But pre-FIRM is usually 
when the public first gets their look at the maps, and one of 
the things that we used to do was--it was always on paper, so 
you had to go somewhere to see it.
    Senator Warren. Yes.
    Mr. Fugate. So we have been working to get these out online 
as digital so people can go look up and get information easier 
to see that information and then make determinations about is 
there anything that they need to do or want to do about that 
information.
    Senator Warren. So maybe I should have asked this the other 
way to get the base rate. How many homeowners have been 
affected by moving from not in a flood zone to in a flood zone? 
Do you have some sense? Or have had their status changed 
because they are----
    Mr. Fugate. It is substantial, and it goes both ways.
    Senator Warren. Substantial as in----
    Mr. Fugate. Thousands. And I would have to--it depends upon 
maps. Some maps had good data, so you do not see big changes. 
Others are more substantial. We know--I can show you that in 
New York and New Jersey post Sandy that--we had already been 
doing maps prior to Sandy, and so in using that data, it has 
increased the flood risk in those areas. The maps display the 
risk, and so as we went through, we were actually mapping those 
areas and updating maps prior to Sandy. But there were 
substantial changes. So it is impacting how and where people 
rebuild. It is also affecting decisions local officials are 
making about where they want to buy out or apply mitigation 
dollars.
    Senator Warren. That surprises me, though, that you would 
say it is thousands. I would think it would be far more 
homeowners than that. But let me ask, in the appeals process, 
for someone to take an appeal--I had heard from someone in 
Massachusetts about this, someone in Brockton who was told that 
if she wanted to take an appeal, the only way she could do it 
was to pay more than $1,000 to an engineer to come in and do an 
elevation study of a nearby brook, even though the city of 
Brockton and the Army Corps of Engineers have no record of the 
brook ever overflowing at any time in history.
    So the question I have is: For a homeowner to take an 
appeal, if they have to take on a cost like this, does that 
really give them an effective tool if they think that they 
should not be rated as in a flood zone?
    Mr. Fugate. Well, there are two parts to that.
    The first piece is, unfortunately, the program does not 
have the money to pay for the elevation certificates, and that 
is what determines.
    The second piece is I have been all over the country, and 
no disrespect, Senator, I have been in many places that have 
never flooded before until it is declared a disaster.
    So we look at the basins, we look at the topography, we 
look at the risk, and we are dealing with risk of 100-year and 
500-year and calculating these flood tables. So it is not 
uncommon to go into areas that have not had recent flooding 
because, quite fortunately, that is not the case in many 
places. But if you do have that rainfall event or that storm 
event, their risk would fall greater than 1 percent, which is 
the special flood risk area. But if we can get the elevation 
and say you are 1 foot above that, then that would move you 
back into a much better category of risk and would make the 
insurance much more affordable.
    Senator Warren. Good. Well, I have some more questions 
about the process. I want to say thank you, Mr. Chairman. I am 
sorry we ran over.
    Chairman Merkley. Senator Vitter.
    Senator Vitter. Thank you, Mr. Chairman. And thank you 
again, Mr. Administrator.
    My first question was: Is FEMA willing to delay Biggert-
Waters or significant parts of it for at least a year? And 
basically the answer I heard was no. I am not going to 
encourage that answer, but that is what I heard.
    Mr. Fugate. Senator----
    Senator Vitter. Let me just finish the question. Part of 
Biggert-Waters was the affordability study. That was due April 
6th of this year. In the same paragraph, you said that is 
nowhere in sight; that will be 2, 2\1/2\ years. So you can 
delay that or cannot complete that on time, or for whatever 
reason, and yet you cannot delay the axe which will in some 
cases yield unaffordable rates.
    Doesn't that seem a little ironic, to put it politely?
    Mr. Fugate. Senator, I have read the legislation. I have 
had attorneys read the legislation. Our staff has looked at it. 
If I had a way to do it based upon anything other than the 
technical implementation of the program, I do not see it. And 
so, again, I am not trying to be obstructive here.
    Senator Vitter. Aren't there all sorts----
    Mr. Fugate. I need help.
    Senator Vitter. Aren't there all sorts of questions about 
technical implementation that are problems that make this not 
ready for prime time, questions you highlighted in your reason 
for not being near completing an affordability study?
    Mr. Fugate. Senator Vitter, let me put my cards on the 
table. I need your help. I have not, my attorneys have not 
found a way--and, again----
    Senator Vitter. Well, let me use----
    Mr. Fugate. I understand the question, sir. I do not have--
again, from our attorneys and everybody looking at this, I do 
not have the answer you are looking for. I need your help.
    Senator Vitter. OK. Let me----
    Mr. Fugate. Without some additional legislative support, I 
am getting bound and boxed into--I cannot address--there is no 
provision for affordability in this bill. It is delayed and 
phased in, but there is no way to build affordability in. It is 
clear the bill wanted to go to an actuarial rate, and the 
affordability study was not coupled to a delay.
    Senator Vitter. OK.
    Mr. Fugate. If it had been written so that until the study 
is done you would not raise rates--it was not written that way.
    Senator Vitter. Let me be clear. I am not asking you to 
make up an affordability section out of thin air. I am asking 
you to properly recognize a lot of true implementation problems 
that make a lot of the implementation not ready for prime time.
    That goes to my third issue. You say you need help. We all 
need to come together and participate in this. So my third 
question is pretty simple. I have put forward specific 
legislative and administrative proposals. So have others. When 
will FEMA make any specific legislative and/or administrative 
proposals to address affordability?
    Mr. Fugate. I have no answer for that, sir, because we 
continue to look at what the possible options are. And part of 
this is coming back to what is it that, as we go through the 
process of doing the implementation, we are identifying as we 
need more guidance or authorities or there are issues coming up 
that we cannot address. So we have not drafted----
    Senator Vitter. Mr. Administrator, you say you need our 
help.
    Mr. Fugate. Yes, sir.
    Senator Vitter. Many of us are willing to offer that help. 
We need your help as some of the experts involved. So when will 
we get your help? When will we get any specific proposals--
legislative proposals, administrative proposals--regarding 
affordability?
    Mr. Fugate. Without the study, the affordability piece of 
this, I would not be able to give you a specific date, plus 
this will require, as anything in the Administrator position, a 
lot of input to provide you a very specific piece of 
legislative recommendations. So I do not have a date----
    Senator Vitter. So no time soon?
    Mr. Fugate. No, sir.
    Senator Vitter. OK. I will submit my second question that I 
highlighted and ask you to answer it for the record.
    I do in my time want to highlight a few other factors that 
go to solvency and, therefore, rate levels.
    The best figure I have, number one, is that 40 percent of 
properties that are supposed to participate in the program do 
not, and there is little to no enforcement action to make them 
get in the program.
    Now, that can clearly yield huge revenue into the program. 
It will mean some additional risk, but my guess is those folks 
do not think they are much at risk. So I would guess it yields 
a whole lot more revenue than risk. That can make a huge 
difference in terms of solvency and what premiums need to be. 
That is number one.
    Number two, the best figure I have regarding the private 
side of the program, private participation, is that those 
private companies get basically a 30-percent markup, a 30-
percent commission and servicing cost for paperwork not taking 
on any risk. To this pro-business conservative Republican, that 
seems absurd.
    What am I missing?
    Mr. Fugate. On the first piece, because of the penalties of 
$2,000 if you do not as a financial institution ensure that you 
have identified those people in the special risk, you are 
getting a lot of folks now that are finding that their mortgage 
companies are notifying them that they have to buy that 
insurance now, and because they were not grandfathered in, they 
are going to the full rate; and if they fail to, they will buy 
it for them and put it in their account. So that is happening, 
Senator, and that tool of penalizing the financial institutions 
for not ensuring that if they write a mortgage for somebody in 
a special risk area and they do not have flood insurance is 
exactly what the Chairman was talking about; he heard from 
constituents that they were being told that they had to get it, 
and it was now at a very high rate that they had not expected.
    And the second piece, the private sector does more than 
just write. This is not an easy policy to write for the private 
sector, particularly for the insurance agent. They have to have 
elevation certificates. There is a lot of reporting. We do very 
specific training that they have to have. They have to be 
certified to do flood insurance. You cannot just be an 
insurance agent. You have to be certified to do flood 
insurance. And then there is the servicing of that. And even 
with those dollars, some companies have chosen not to continue 
to write your own, rather large companies who shed 
significantly their exposure to this, because they did not see 
it in the interest of their shareholders.
    So it is something we were looking at. You have asked us in 
this law to study that and also make recommendations, and as 
the rates increase, I think when you are talking smaller 
policies, 30 percent probably makes sense in some of those. But 
as you start getting to higher rates, is it proportional? 
Should it be at 30 percent fixed across the board? Or as it 
escalates, would you see that increase like you would a lot of 
other situations?
    But that is something that we are working on and working 
with the insurance industry and the Write-Your-Own companies.
    Chairman Merkley. Senator Tester.
    Senator Tester. Thank you for being here, Administrator 
Fugate. In your tenure as the head of FEMA, you have seen some 
pretty amazing disasters, maybe the largest in American 
history. I will start out by saying I appreciate your 
cooperation with Montana on the flood and fire seasons that we 
have had the last few years, and I want to thank FEMA for their 
fast response for the fire management grants this summer. When 
we had fires that were lapping at communities' doors, you guys 
stepped up, and I want you to know I very much appreciate that.
    We worked pretty hard on Biggert-Waters to include a 
provision that got FEMA and the Army Corps to share information 
when it comes to flood protection structure, accreditation 
requirements. You are familiar with it. It established an 
accreditation task force to carry this out. It was supposed to 
be done and back to Congress by July 2013. Where is it at? And 
why is there a delay?
    Mr. Fugate. It is in concurrence in the Administration. We 
expect to have that report out in the next month. I am always 
cautiously optimistic in the concurrence process, knowing how 
that can sometimes take longer than I anticipate. But it took 
us that much time to get everything together, to get the report 
written, to get it into concurrence, and to get the product 
ready. And our hope is that we will be able to provide that to 
you I would say in the next month.
    Senator Tester. Thank you.
    Mr. Fugate. I know of nothing that is holding it up. It is 
just going through that final concurrence process to get it 
released, sir.
    Senator Tester. This is not an indication of the 
cooperation level between FEMA and the Army Corps?
    Mr. Fugate. No, sir. General Bostick and I have been 
working side by side, both through disasters but also in our 
responsibilities, in ensuring that we have the best cooperation 
working on our levees, maps, and other technical efforts to 
look at flood.
    Senator Tester. OK. You talked about needing our help, and 
I will say that there has been some talk about delay. You 
talked about the fact you do not want to price middle-class 
families out of their homes, and I appreciate all of that. I do 
not think there is an insurance company on the panel today, but 
what impact--I mean, you were talking about notices being sent 
out. What impact would a delay have on all that? And would that 
have an impact on--we are always being accused of not a lot of 
predictability around here. Would that have an impact on the 
overall program as far as people's comfort with it?
    Mr. Fugate. The one impact that would be most immediate 
would be those that either had a lapsed policy, a map change, 
or for some other reason would see the rates begin increasing 
now.
    My real question is: Is--I do not believe--and I have not--
I know there are concerns, but we have already done secondary 
homes, vacation homes, secondary properties. I do not know of 
any reason why we would want to delay that. That is already in 
effect. Those notices are out, and those properties are moving 
to these rates. Again, it is based upon secondary homes.
    Repetitive loss properties, you had a provision in there, 
and this is something we run into. People refuse to be bought 
out or elevated, and we continue to subsidize their rates and 
pay them. And that ends as part of that.
    Of the two sections, 205 I feel most strongly about 
implementing those now because they are the private sector 
businesses, they are the secondary homes, they are the 
repetitive loss that have not done things to mitigate. Section 
207 gets into those areas that we are now talking about 
previously, either pre-FIRM'd or were grandfathered in rates 
that you cannot sell your home unless it jumps, you lose that, 
it is going to go up. If the map changes as we update maps, you 
now have a very short period of time, over several years, to 
move to those higher rates. And we have no basis to adjust 
those rates based upon affordability and what that 
affordability means.
    Quite honestly, Senator, I am not sure we should be not 
slowing this down for new construction. If you are building 
condos in my home State of Florida, should we be giving you a 
discount rate?
    Senator Tester. Right. So from my perspective as a policy 
maker, those are the kind of recommendations I would like to 
hear from you, and I would hope that you would work with both 
Senators from Louisiana, and all of us, quite frankly, the 
leadership on this Committee, to try to figure out what we can 
do to not price the middle-class folks out of their home, OK?
    Could you give me an idea--because Senator Vitter brought 
this up in his opening statement--what kind of a $250,000 
property would have a $28,000 premium?
    Mr. Fugate. Based upon the actuarial tables that we 
produced--and we did this using the insurance models and 
everything--if you are at base flood elevation, that is 
considered about the medium risk, a $250,000 home with $100,000 
contents, about $1,600. If you go 4 feet above that, it would 
drop to a little over $500. But if you drop below that in 
increments of 4 feet, it goes from about $1,600 to $10,000 and 
continues to almost double for every 4 feet.
    So you can see very quickly how, if you had a community 
that was not mapped, you are in that Special Flood Hazard Area 
and you may be as low as 10 to 12 feet below that, particularly 
in coastal areas where you have got storm surge risk and those 
type of factors, as you look at that, you could see dramatic 
increases for a home that is worth $250,000 but now may have 
insurance rates potentially of almost 10 percent or more of the 
actual value of the home.
    Senator Tester. Thank you.
    Chairman Merkley. Senator Heitkamp.
    Senator Heitkamp. Thank you so much, Mr. Chairman, and 
thank you for your testimony. Bet you do not know what I am 
going to ask.
    As you know, more than 50 communities across the country, 
including 14 in my home State of North Dakota, have a so-called 
basement exemption. And I just want to make this point because 
I think for a lot of folks they wonder why that is. But a 
basement in a State like North Dakota and in a State that is 
plagued with tornadoes and bad weather can be a significant 
mitigation factor itself. And so I think there is good public 
policy to encourage the availability. And as we all know, those 
of us who have dealt with flood work in the past, you do not 
replace a finished basement if the basement is destroyed. You 
look at things that traditionally would be down there, like 
freezers and furnaces and maybe an electrical panel. And so a 
basement exemption is not--you know, recovering from a flooded 
basement is not full recovery. It is simply limited to those 
things that you would expect would be in a basement.
    As part of this exemption, the city of Fargo, which has 
experienced its share of floods, has developed and adopted 
pretty rigorous flood-proofing construction requirements that 
meet or exceed the technical manuals. For example, the city 
requires that all residential structures be flood-proofed if 
they are located in the Special Flood Hazard Area or within 50 
feet of it. The top of the basement walls must be elevated 2.5 
feet above the base flood elevation, and fill adjacent to the 
structure must be 2 feet above the base flood elevation. 
Additionally, the foundations are subject to annual 
inspections. For new developments in the Special Flood Hazard 
Areas, the properties must be elevated with fill to at least 
the base flood elevation.
    Now, overall the flood-proofing requirements have been a 
very effective flood mitigation tool in the region. In spite of 
some pretty heavy water pressures, not just floods but 
obviously high groundwater tables, more than the 600 flood-
proofed foundations installed over the past 40 years, none have 
failed. But it is a great concern that I am going to raise with 
you, which is the elimination of the basement exemption.
    What we are hearing from the officials in the city of Fargo 
is that that exemption--the elimination of that exemption could 
result in a $10,000-a-year increase for very modest homes, 
homes that are middle-class homes. And we have been discussing, 
I think quite accurately, the affordability issues.
    And so I have two questions. Do you have an estimate on 
what those premiums would be in communities if the basement 
exemption is eliminated? And will you be maintaining this 
exemption? Have you made any decisions? I know that Senator 
Hoeven and I have been on this since I first got here, and we 
are curious about what your thinking is.
    Mr. Fugate. As far as the cost, I would have to go back and 
ask the question of staff: Does base flood elevation start at 
the base floor or would it be the basement? Because if a 
basement is 8 foot below and that is where they look at, you 
would see those numbers. But I do not know how you calculate, 
and I would have to ask staff. Do we calculate at the floor 
level, at grade, or do we calculate from the basement? So I 
would not know that, but we can get that for the record.
    Mr. Fugate. As far as the second part, I do not know that 
either. I will have to ask staff, because we saw so much of the 
language that allowed us to do exemptions exempted out that 
most of the affordability pieces, which this may be how it was 
looked at, were being exempted. I would have to ask staff is 
that what that is or is that still able to stand on its own. 
But because the way that Biggert-Waters is written, there were 
so many exemptions previously for affordability grandfathering 
that were taken out that I do not know if we even have that 
flexibility. But we will get back to you on that, Senator.
    Senator Heitkamp. That would be terrific, and if I can just 
indulge just one follow-up, I think it is important that, you 
know, as people think about it, maybe in areas where there are 
not tornadoes and areas where they do not need the basement for 
additional protection, that it is not just about affordability. 
It is about making sure that my people are safe when bad 
weather comes. And so I really encourage you to take a look at 
this, understand what that means not only for a State like mine 
but a State like Missouri and a number of States that are very 
dependent on a basement as an opportunity for shelter.
    Mr. Fugate. I understand. Senator, we will get back to you 
on those two points.
    Senator Heitkamp. Thank you very much.
    Chairman Merkley. Senator Schumer.
    Senator Schumer. I defer to Senator Landrieu.
    Senator Landrieu. Thank you so much, Senator Schumer. I 
really appreciate that special opportunity. I am not a Member 
of the Banking Committee, and I really appreciate, Mr. 
Chairman, you allowing me to be here. This is such an important 
issue for Louisiana and for the gulf coast, but more 
importantly than that, this is an important issue for the whole 
Nation. And I really appreciate Senator Heitkamp's questioning 
because what I have tried to impress upon the Members of this 
Committee and the Senate in both parties, this is not a 
Louisiana issue. This is not a gulf coast issue. This is not a 
coastal issue. This is a national issue. And for the record, to 
impress upon that, I want to submit for the record of this 
Committee the 15 States that have more than--that have 
substantial policies: California, 256,000; Florida, 2 million; 
Louisiana, 486,000; Mississippi, 75,000; North Carolina, 
138,000; New Jersey, 238,000; New York, 173,000; Pennsylvania, 
73,000; South Carolina, 204,000; Texas, 645,000 homes and 
businesses; Virginia, 115. I am going to submit this to the 
record. It is 5 million homes in Louisiana--I mean in the 
Nation, including Louisiana, and businesses.
    Now, one of my questions--and I do not want an answer, but 
I am going to ask you to submit in writing--are we going to see 
this total 5 million go up to 10 or 15 when new maps come out? 
What is the scale? That is rhetorical.
    It is important, Mr. Chairman, to understand the scale of 
this. We have been talking about the details of the 
affordability study, the technical aspects. But the scale of 
this is important. This is a major bill that passed without the 
data necessary to use either compassion or common sense. OK? 
Compassion and common sense is what we are asking for. And it 
affects millions of homeowners and businesses. And it is not 
just homeowners and businesses. It is banks, real estate 
companies. It could have a devastating economic impact. It must 
be delayed, fixed, or modified.
    Now, I do have a specific question. GAO's testimony cites 
five, Mr. Fugate, just five current gaps--there may be more, 
but five. I am going to do them quickly.
    Second homes. Data on primary versus second home residence 
is outdated. You might have it. It is not dated correctly. FEMA 
classified properties as residential or nonresidential, but 
does not know which of these properties are schools and 
churches, still eligible for a subsidy, as opposed to 
businesses, which are not.
    In substantial-damage properties, GAO says the law 
eliminates subsidies for properties with damage over 50 percent 
of their fair market value, but you do not even have data about 
people's fair market value of their home and no way to get it.
    Substantially improved properties. The law also eliminates 
subsidies for properties whose renovations exceed 30 percent of 
their fair market value. You cannot calculate that ratio 
anyway.
    Finally, multifamily SRL. FEMA does not define severe 
repetitive loss for multifamily properties either, so you would 
be unable to eliminate subsidies on these. You do not have the 
data to implement this law.
    Now, there has got to be some overriding law in the 
Constitution of the United States that says you cannot 
implement a law if you cannot implement it. You know what I am 
saying? Like you have to implement it, but you cannot implement 
it if you do not have the data.
    Now, this is maybe how we do business in Louisiana. I do 
not know. I can hear Chuck Schumer saying that. But there has 
got to be a way. If you do not have the data, how can you 
implement it? That is number one.
    Number two, there are 3,000 counties in this country. We 
have 64 in Louisiana--parishes. What I would like to know is 
what FEMA is doing to reach out to NACo and to the mayors and 
to the national counties? Because this poor woman that Senator 
Warren spoke about never flooded in her life, creek never 
overflowed, never came out of the creek, now she has got to 
have $1,000. Maybe the county could organize a program to help 
homeowners like this.
    So what are you doing county-wide? And will you include the 
levees that we build at our own experience into our rates?
    Mr. Fugate. We are reaching out through all the 
associations. We have been working through associations, 
floodplain managers and other associations, associations of 
Government, and we continue to do that.
    As far as levee data, yes, ma'am, we will build whatever 
information, whatever protective measures--in fact, you gave us 
some tools in Biggert-Waters. There is not all bad here. One of 
the things you did do, which was really important, was 
remember----
    Senator Landrieu. Mostly bad.
    Mr. Fugate. ----that we had a community that was getting 
and had funding to build a levee, and even though we would know 
it was being built, we would charge the higher rates and then 
we would have to adjust them when the levee got built? You gave 
us the provision that if we know it is being built within a 
certain time frame, that we do not have to raise the rates, 
knowing that the funding is obligated and there would not be 
new construction.
    So, yes, we worked those in and built those in the maps, 
and we also factor in if it is under construction or will be 
under construction with funding, we can actually use that to do 
the map.
    Senator Landrieu. OK. Mr. Chairman, beg me--just for 45 
more seconds for two points.
    One, if Biggert-Waters and the bill was prospective, I 
think the country could deal with this in a better way. The 
fact that it is so retrospective and catching people that have 
been in their homes for decades on slabs in places like 
Louisiana, we live below sea level, but we have been living 
below sea level for 300 years. We did not move there yesterday. 
And may I say just for the big picture of it, half the 
population of the Netherlands, which is 16 million people--I 
have been there five times. I think Mr. Fugate has been there--
live below sea level. But, you know, they do not flood. They do 
not price their people out of the market.
    You can live safely below sea level. People have been doing 
it for hundreds of years. But we have to have a policy that 
acknowledges that, supports that, not subsidizes at the great 
generosity of taxpayers, but is smart to recognize these 
economic coastal communities, like New York, New Jersey. People 
are not sunbathing there. We are operating the biggest port 
systems in the country.
    So thank you, Mr. Chairman.
    Chairman Merkley. Thank you very much, Senator.
    Senator Schumer.
    Senator Schumer. Thank you, Mr. Chairman. Thank you for 
holding this hearing. I thank Administrator Fugate.
    Unfortunately, we have been dealing a lot with each other 
in the last few years. I say ``unfortunately'' not because I do 
not like dealing with you--you are an outstanding 
administrator, you are very responsive; I think the world of 
the job you are doing--but because we have had so many natural 
disasters in the New York area over the last few years. Between 
Irene and Lee and Sandy, just about every part of my State has 
been hit in addition to other issues.
    So, first, I just want to add my voice. People have made 
the point well that we do not have an affordability study, and 
yet we are making people pay unaffordable rates, and they are 
just unaffordable. As Mary said, as Senator Landrieu said, this 
is not for rich people. We have got lots of middle-class and 
even poorer people living on the shore in Staten Island, in 
Brooklyn, in Queens, and Long Island. They cannot afford 
$9,000. And they are going to have to either leave their 
homes--and this is many people who were ravaged by Sandy. They 
are just beginning to rebuild their homes, and then they get 
their flood insurance go way up. And they do not have any 
money.
    So I would ask you this: You say the law DOES NOT allow you 
to change it. What if all these people just drop out of the 
program? Which they will and make the program much less viable. 
Doesn't that give you the ability to delay things? You have 
delayed the affordability study. Why shouldn't you be delaying 
imposing these huge, huge fees on people? That is question one. 
I am going to ask my question seriatim.
    Second, we are building----
    Senator Menendez. Does that mean in a row?
    Senator Schumer. And that means in a row.
    Mr. Fugate. Yes, sir.
    [Laughter.]
    Senator Schumer. Thank you, Bob. In Hudson County, they 
have never heard the word ``seriatim,'' but in Brooklyn we 
have. Anyway, Brooklyn and Hudson County, we can say that our 
kindred spirits in many ways.
    Senator Menendez. Does it mean something different in 
Hudson County?
    Senator Schumer. It means something different in Hudson 
County.
    [Laughter.]
    Senator Schumer. I will not try to figure out what that is.
    Second, in New York, we are building all kinds of dunes to 
protect our coastal areas, heavily populated, like never 
before, 12-foot dunes in the Rockaways and in Long Beach, maybe 
higher in parts of Suffolk County. But these people have just 
gotten their flood insurance rates, and they are based not on 
building a dune. So Mary asked, Senator Landrieu asked about 
what if they are building something--what if they are in the 
process of building with the levees? But what about us? We have 
already labeled--you have raised the rates, and now in 2 years 
it will be much more protected. I know how it is to get FEMA to 
redo a map because an area of half a million people has very 
strong, good protective dunes. We will never get you to do it. 
I hope we can look at that as well, because even on an 
actuarial basis, once these dunes are built, the likelihood of 
flooded is less.
    So if you could answer both those questions seriatim, I 
would appreciate it.
    Mr. Fugate. I will start, first go backwards. Doing the 
dunes, it does offer significant protection against storm 
surge, and I would have to look at the data, but I also know 
that the back bay flooding the dunes do not address. So, again, 
looking at the protection and building that into the map 
updates we will continue to work on. And maps are not as 
final--I know this is--and I have been there a lot. When we 
publish maps and they get adopted, that is not the end of it. 
We always have the opportunity to come back and put new data in 
there, and since those maps, as you know, Senator, were already 
pretty well through the system before Sandy hit, we can still 
build in the improvements and run----
    Senator Schumer. But, sir, in reality, I have tried to 
get--they used the wrong map for Nassau County, an egregious 
mistake. They used Suffolk County's map for Nassau County. Do 
you know how much effort and years it took to get a change? So 
to say you will redo it does not give us much comfort, because 
any of us who have dealt with FEMA, it is like pushing a big 
boulder uphill to get them to redo a map. We need some kind of 
ruling prospectively that when new--and, by the way, for the 
back bay areas, we are doing things for mitigation there, too. 
It may not be a dune, but we are doing other things there in 
terms of sewage systems, in terms of barriers, in terms of 
jetties, things like that. And is there any way to implement a 
system when that--they have to come out with a new assessment 6 
months after something is built? We need something that you 
cannot just say, well, call your Senator, call your 
Congressman. Boy, oh, boy, that is frustrating for them and 
frustrating for us dealing with FEMA to change the maps. And 
then everyone's view is FEMA is doing this because they are in 
deep trouble and they want to collect as much money, correctly 
or incorrectly, as possible.
    Mr. Fugate. Well, Senator, the answer to that one is--and I 
am honest about this, and I realize there are always doubts. 
No, sir. But what I also believe is we should give people the 
best possible data. Much of the data for the areas impacted is 
what was called pre-FIRM. It was in the process of going 
through the adoption process. But we knew a lot of people had 
to make decisions about how they were going to rebuild, and 
they did not want them building back the way they were if you 
knew that if they built higher and elevated, they would get a 
preferred rate.
    So there is the challenge of Sandy hit with the data we had 
trying to start that process, and we made decisions, working 
with State and local officials, to use that data to plan the 
future. But those maps are still going through the adoption 
process.
    Senator Schumer. OK. Well, I wish you would consider some 
kind of--because we are going to be building our shoreline--I 
am sure Bob is in New Jersey--for a long time. And you did not 
answer--my time has run out, but you did not answer my first 
question. If you can delay the affordability study, why can't 
you delay--because on the basis that so many people are going 
to quit if you keep this in place, that it will affect the 
viability of the program?
    Mr. Fugate. The answer is, Senator, if there was those 
tools there, we would be looking at it. Staff has advised me, 
attorneys have advised me internally at FEMA that I do not have 
that authority. And it is not as easy to drop out as that, 
Senator. You have to maintain that as part of your mortgage if 
you have a federally backed mortgage. And if you were to 
voluntarily drop it, your mortgage company would purchase it 
and bill you for it anyway. So it does----
    Senator Schumer. Well, that is of great consolation. Thanks 
for that.
    Mr. Fugate. I am just trying to be factual, Senator, that--
--
    Senator Schumer. I know you are.
    Mr. Fugate. ----in a special flood risk area, it is tied--
the requirement to have it--there is no requirement to buy 
flood insurance out of the special risk area. There is no 
requirement to buy flood insurance if you are in a special risk 
area unless you have a federally insured or backed mortgage, 
and then that is the requirement to purchase. So that is one of 
the ties that has been pointed out, looking at affordability, 
many of these people in the middle class have mortgages. They 
are also required to have the flood insurance to cover the 
exposure.
    Senator Schumer. But they cannot afford it. They do not 
have $9,000, when they were paying $1,000 before. And you can 
say what you want--excuse me. You can say what you want, that, 
oh, they have to, because everyone has a federally insured 
mortgage in middle-class areas, so it is not saying, oh, all 
the people who do not have federally insured mortgages are not 
covered by this. But you are not giving them--it is not a 
satisfying answer to you or to us. We need a better one.
    Mr. Fugate. Absolutely, Senator.
    Chairman Merkley. With that, we are going to have to 
continue, because we do have a second panel. Senator Menendez.
    Senator Menendez. Thank you, Mr. Chairman, and to the 
Ranking Member, for holding this hearing. And while I am not a 
Member of the Subcommittee, I appreciate the opportunity to be 
here as a member of the full Committee.
    Administrator, first of all, I want to say that I think the 
incredible challenges that we have had in the region--Irene, 
Sandy--your overall responses and those of your agency have 
been extraordinary. And let me preface my remarks by saying 
that. I do not think that in the midst of this hearing we 
should lose sight about, from my perspective at least from the 
region, the tremendous work that you have done.
    But this particular issue falls also in your bailiwick, and 
I have to be honest with you. Part of it is that telling my 
colleagues, some of my colleagues here, that you reap what you 
sow, I was very much one of those voices who said we should 
have some degree of subsidies. And I had an amendment to try to 
pursue that in the Committee. When it became clear that that 
was going to be a nonstarter because some of our colleagues on 
the Committee would not hear of it and would not move forward, 
then it was I who was pursuing the affordability study that 
ultimately got included in the legislation, which was supposed 
to be achieved 270 days after the enactment.
    Now, I have read your testimony, and while I was not here 
physically, I have heard the answers. And I have a problem that 
we do not have the income levels, we do not know what the rates 
are. I do not know what you need to get the study done, but, 
you know, I would like to have the specifics of what you need 
to get the study done, number one.
    Having said that, while we work to get the study done, I do 
not believe that FEMA should be allowed to phase out subsidies 
or end grandfathering until it presents a plan to make flood 
insurance more affordable.
    Now, I hear that you say you do not have the wherewithal 
legislatively to do that, and I would invite you to submit to 
my office what is the language that you need, because I would 
like to put my colleagues to the test. Everybody who is 
complaining about flood insurance and the consequences to 
middle-class families, let us see if you are willing to put 
your vote to the opportunity to amend through some vehicle that 
I am sure will move to the floor the opportunity to create the 
affordability mechanism, or at least to delay while we 
determine what is the consequences, because these consequences 
are for real people. It is not just about property. It is not 
the property I am worried about. It is the people, the 
families, the people who call this their home, the people who 
are not going to be able to afford it as a result of this, the 
people who have put a lifetime of work and sacrifice to own the 
single piece of property that is their single economic asset 
that they have overwhelmingly for most American families. We 
are going to take that rug out right from underneath them. This 
is the triple whammy.
    You have the storm that came in and destroyed people's 
lives. Then you had the flood maps and, you know, with all due 
respect, some of those flood maps in our New Jersey experience 
from where we went from to where we were, thank God that we had 
a push on the refinement of them because 80-percent reductions 
in V zones that would have dramatically--even beyond what we 
are talking about, would have made it impossible for people to 
afford flood insurance. So we will have to look at that process 
in the future.
    And then, any, now a human-made disaster, which is the 
consequences of the insurance premiums that are unaffordable 
for families to keep.
    And then, in addition the consequences to families, look at 
what is going to happen to this economy. The ripple effect of 
real estate that you cannot sell because the premium is 
unaffordable, that no one is going to buy because the premium 
is unaffordable, the consequences of falling ratables--and as a 
former mayor, I know the consequences of the challenges of 
falling ratables--and instead of getting behind this final 
nascent growth for the housing market, we are going to really 
pull the rug right out from underneath it, and that is going to 
have effects upon our economy as a whole, not just those people 
who find themselves in flood zones.
    So I would like to get language from you to deal with the 
specificity that you think you need, and I expect the 
Department to give us that so that we know, and I am going to 
find a way to challenge my colleagues. I know Senator Landrieu 
had an amendment, which I supported, on the floor. 
Unfortunately, it was held up by one of our colleagues, would 
not let us even have a vote on it. I want to see who is really 
willing to help these property owners.
    Finally, there are two other issues that I think are 
incredibly challenging. I mentioned the flood maps, and I do 
not think we should put out information when it ends up with 
80-percent inaccuracy. I know there was the drive to get 
information and prepare people, but 6 months of preparation in 
which you are trying to think about what is the cost is 
enormous.
    The last thing I would like to ask you--this is seriatim--
how many claims for foundation repair have been denied due to 
earth movement? I have heard from a ton of constituents who had 
their flood insurance claim denied or reduced because the 
damage to their foundation was caused by earth movement, and 
the only reason the earth moved was because of the flooding. 
And most homeowners had no idea their policy did not protect 
them from this type of damage and are understandably--they have 
said they are being denied after responsibly paying flood 
insurance for years and years and years.
    So how many claims for foundation repair have been denied 
due to earth movement? And what outreach is done when terms are 
changed, not the fine line, you know, that most people never 
read, but when terms are changed and certain types of damage 
are excluded from coverage, how do they know?
    Thank you, Mr. Chairman. Can I get those answers before 
moving to the next----
    Chairman Merkley. Yes.
    Mr. Fugate. First one, yes, we will work with your office 
on technical directing assistance, and we will continue to work 
with all members on that.
    On the foundations, I will get those numbers to you, 
Senator. One thing, again, as Senator Landrieu points out, in 
Biggert-Waters one of the things they did do, which I think is 
helpful in the Write-Your-Own policies, it requires in big bold 
print what your policies cover and do not cover. I think that 
was to address the concerns when this comes up. But we will 
also get back to your office, Senator, those things we are 
doing about earth movement and how that appeal process works 
and the information on that.
    Senator Menendez. Thank you.
    Chairman Merkley. Thank you very much.
    Senator Vitter. May I have 10 seconds?
    Chairman Merkley. Yes, 10 seconds.
    Senator Vitter. Just as a brief follow-up to the first 
question, I do not think Senator Menendez was asking for 
technical drafting assistance. I think he was asking for the 
same thing I was asking for, which is leadership. And we would 
really like that as partners in fixing this issue.
    Chairman Merkley. Senator Heller, did you want to jump in 
for a second?
    Senator Heller. Because of time restraints, I will submit 
additional questions. I have some mapping questions that I 
would certainly like you to address, and I will leave them with 
the Chair here and hear back from you, if that is OK.
    Chairman Merkley. Thank you very much.
    Administrator Fugate, I know given the number of 
emergencies around the country, we really appreciate you 
showing up to address this. I think it is very clear from this 
set of questions that there is a lot of concern about 
fundamental issues of fairness, families who have never needed 
flood insurance are suddenly being told they need it, but for 
every $1,000 they pay in flood insurance, the value of their 
house goes down by $20,000. And all sorts of challenges result 
if new buyers have to get flood insurance at a rate that 
essentially means that the house is now worthless.
    And so we have conflicting issues that we are trying to get 
our hands around. I really will follow up and ask for 
aggressive help in translating all the stories you are hearing 
from around the country into a clear set of affordability 
challenges, and if there are other ways we can accelerate the 
affordability study as required, perhaps the goal is too 
expansive that you have set for yourself, and maybe there is 
information that would be very helpful. But I think you are 
going to see a lot of continued conversation from all of us 
because there are issues here that just demand our attention 
and our action.
    Thank you again for appearing today, and we will be getting 
questions to you that are submitted. We will hold the record 
open for 7 days for any additional questions, and if you and 
your team could be responsive to those, we will then make sure 
they are circulated thoroughly. Thank you.
    Mr. Fugate. Thank you, Mr. Chairman. Thank you, Senators.
    Chairman Merkley. We will now have our third panel come 
forward, please.
    [Pause.]
    Chairman Merkley. We are deeply appreciative that the four 
of you have come to testify, and indeed we are fortunate to be 
joined by top-notch experts. I would like to especially thank 
Christine Shirley, who has come from my home State of Oregon, 
and we look forward to hearing all of your testimony.
    I am going to give an introduction for each and every one 
of you now, and so we can just proceed from one testimony to 
the next.
    Alicia Cackley is Director in the Financial Markets and 
Community Investment Team at the U.S. Government Accountability 
Office. She oversees policy research and program evaluation on 
a broad range of insurance, consumer protection, housing, and 
finance issues, including the National Flood Insurance Program, 
consumer product safety and consumer financial protection, 
bankruptcy, financial literacy, and homelessness. Ms. Cackley 
received her Ph.D. in economics from the University of Michigan 
and has been with the Government Accountability Office since 
1990.
    Christine Shirley is the NFIP coordinator and natural 
hazards program planner for the State of Oregon, a position she 
has held since 2007. Ms. Shirley offers technical assistance to 
Oregon's 260 communities that participate in NFIP. She 
interacts daily, in addition, with State agencies, surveyors, 
building officials, real estate agents, building owners, and 
others who have questions or concerns about implementation of 
the act. Ms. Shirley studied at the energy and resources group 
at UC-Berkeley prior to earning a master of science degree in 
geographic information science from Birkbeck College, 
University of London, in 2004. She became a certified 
floodplain manager in 2005.
    Steve Ellis joined Taxpayers for Common Sense in 1999 and 
serves as vice president, overseeing programs and serving as a 
leading media and legislative spokesperson. His expertise 
ranged from earmarks to flood insurance and a lot of spending 
issues in between. Mr. Ellis received his B.S. in Government 
from the U.S. Coast Guard Academy. He has earned both the Coast 
Guard Commendation Medal and the Coast Guard Achievement Medal.
    Mr. Birny Birnbaum is a consulting economist and former 
insurance regulator whose work focuses on insurance regulatory 
issues. He serves as an economic adviser to and executive 
director for the Center for Economic Justice, a Texas nonprofit 
organization whose mission is to advocate on behalf of low-
income consumers on issues of availability, affordability, 
accessibility of basic goods and services, such as utilities, 
credit, and insurance. He holds two master degrees from MIT in 
management and in urban planning, with concentrations in 
finance and applied economics.
    Thank you all four for coming and bringing your expertise 
and frontline experience from across the Nation. Ms. Cackley.

STATEMENT OF ALICIA P. CACKLEY, DIRECTOR, FINANCIAL MARKETS AND 
     COMMUNITY INVESTMENT, GOVERNMENT ACCOUNTABILITY OFFICE

    Ms. Cackley. Chairman Merkley, Ranking Member Heller, I am 
pleased to be here today to testify on an NFIP, the National 
Flood Insurance Program.
    As you know, the Flood Insurance Program is a key component 
of the Federal Government's efforts to minimize the damage and 
financial impact of floods. As of the end of fiscal year 2012, 
the program had more than 5.5 million policies with an insured 
value of about $1.3 trillion and collected about $3.5 billion 
in annual premiums.
    My statement today will discuss the reasons that NFIP is 
considered high risk, changes to subsidized policies and 
implications of potential additional program changes, and 
additional challenges for FEMA to address. The testimony is 
based on two reports we recently issued in July of 2013 in NFIP 
coverage limits and subsidized properties, as well as other 
prior GAO reports on various issues related to NFIP.
    The NFIP was added to GAO's high-risk list in 2006 and 
remains high risk due to losses incurred from the 2005 
hurricanes and subsequent losses, the financial exposure the 
program represents for the Federal Government, and ongoing 
management and operational challenges. As of July 31st of this 
year, the program owed approximately $24 billion to the U.S. 
Treasury.
    NFIP's financial condition highlights structural weaknesses 
in how the program has been funded, primarily its rate 
structure. NFIP offers two types of flood insurance premiums to 
property owners who live in participating communities, 
subsidized and full risk. The annual amount that NFIP collects 
in both subsidized and full-risk premiums is generally not 
enough to cover its operating costs, claim payments, and 
principal and interest payments for the debt owed to Treasury, 
especially in years of catastrophic flooding, such as 2005. 
Thus, much of the financial risk of flooding is transferred to 
the Federal Government and ultimately the taxpayer. 
Furthermore, the weaknesses we identified in NFIP management 
and operations, including financial reporting progresses and 
internal controls, strategic and human capital planning, and 
oversight of contractors, also put the program at risk.
    The Biggert-Waters Flood Insurance Reform Act of 2012 
mandated that GAO conduct a number of studies related to actual 
and potential changes to NFIP, including analyses of remaining 
subsidies and the effect of increasing coverage limits or 
adding coverage options. In our study of remaining subsidies, 
we estimated that, as of enactment of the Biggert-Waters Act, 
approximately 438,000 policies no longer would be eligible for 
subsidies, while subsidies on most of the approximately 715,000 
remaining subsidies policies are expected to be eliminated over 
time as properties are sold or coverage lapses, as are previous 
exemptions from rate increases after flood zone revisions.
    Reducing the financial impact of remaining subsidized 
policies on NFIP generally could involve accelerating 
elimination of subsidies, targeting assistance for subsidies, 
expanding mitigation efforts, or some combination of these 
three. Each approach has advantages and disadvantages that 
would need to be carefully considered, and action would be 
required from both Congress and FEMA.
    Similarly, in our mandated report on raising coverage 
limits or adding optional coverage types, we found there were 
advantages and disadvantages to making more changes to the 
program, which would need to be carefully weighed. We estimated 
that the financial impact on the program of raising coverage 
limits or adding business interruption or additional living 
expenses coverage would depend on the adequacy of the rates 
charged.
    Looking forward, FEMA will require several years to fully 
implement the Biggert-Waters Act, and FEMA officials have 
acknowledged that they have challenges to resolve. These 
include updating and correcting information on whether a policy 
is for a primary or a secondary residence, determining the fair 
market value of insured properties, and developing a definition 
of ``severe repetitive loss'' for multifamily properties. 
Further, FEMA must establish full-risk rates that reflect flood 
risk for active policies that are no longer eligible for 
subsidies. However, at this point in time, it does not have a 
plan to do so.
    In conclusion, when we placed NFIP on the high-risk list in 
2006, we noted that comprehensive reform likely would be needed 
to address the financial challenges facing the program. Since 
passage of the Biggert-Waters Act, FEMA has taken some 
important first steps toward implementing the reforms the act 
requires, but the extent to which the changes included in the 
act and FEMA's implementation of these changes will reduce the 
financial exposure created by the program is not clear, and the 
program's long-term financial condition is not yet assured. 
Getting NFIP on a sound footing, both financially and 
operationally, is important in achieving its goals, and at the 
same time reducing its burden on the taxpayer.
    Mr. Chairman, this concludes my prepared statement. I would 
be happy to respond to questions.
    Chairman Merkley. Thank you very much. We are going to hold 
questions until the end.
    Ms. Shirley.

   STATEMENT OF CHRISTINE SHIRLEY, NATIONAL FLOOD INSURANCE 
    PROGRAM COORDINATOR, PLANNING SERVICES DIVISION, OREGON 
        DEPARTMENT OF LAND CONSERVATION AND DEVELOPMENT

    Ms. Shirley. Thank you for having me. I am very grateful to 
be here, Chairman Merkley and Ranking Member Heller and the 
rest of the panel.
    For the last 5 months, I have been making the rounds to our 
local floodplain managers, surveyors, real estate agents, and 
so on, and some appraisers, to talk about the Flood Reform Act, 
and I can say there is a lot of confusion out there, and this 
confusion is causing a lot of fear and causing FEMA to lose 
some credibility out there in the community. And the real 
estate market is responding, as we heard earlier. Darby from 
the State of Florida actually contacted me yesterday and summed 
up the situation there as saying, ``The reality of the 
situation is that this crisis has immediately stopped all real 
estate sales in my area. Overnight, once word got out, no homes 
in any flood areas are selling.''
    Appraisers who were crazy busy before the market was 
booming are now going 3 or 4 days without seeing an appraisal, 
and banks are refusing refinancing because they cannot 
determine fair market values. I am seeing exactly the same 
thing, especially on the coast areas of Oregon, but also in 
other flood-prone areas in Oregon.
    The main thing is it is very important to note that markets 
do not like uncertainty, and the uncertainties caused by this 
rollout of the program are having an effect.
    I want to stress that Oregon supports the intent of the 
NFIP, and the NFIP is woven into our statewide land use plan, 
and we really are trying hard to make Oregon a flood-resilient 
State. In order to do that, we need an NFIP that is based on 
accurate flood maps, that is understandable, and that goes 
beyond insurance and encourages mitigation. The reform act, as 
we see it, focuses too heavily on insurance and not enough on 
mitigation.
    As you know, the flood maps provide the basis for cities 
and counties to identify and manage their floodplains, and we 
have generally found the FIRMs to be accurate, in some areas 
better than others, but they do help us manage our floodplain.
    And I want to also point out that there is a difference 
between having an accurate flood map and being able to read the 
flood maps, and most of the problems that we see are a result 
of flood zone determination companies and lenders not reading 
the maps accurately and determining whether a building is in or 
out of the flood zone.
    Map improvements can be made, and those require funding. We 
are very happy that the reform act authorized $400 million a 
year for mapping, but we need that to be translated into 
appropriations. In 2010, $220 million was appropriated for 
flood mapping. Now we are down to $95 million, and we really 
need to get those numbers up to the previous--even the $400 
million would be great.
    So as I said, our problem is not so much with the quality 
of FIRMs. Our real problem is with risk communication, and this 
has increased with the reform act. It has always been a 
challenge.
    The reform act implementation has been very poor in terms 
of communicating what is happening out there to the 
professionals and the public that need to hear about it. First 
of all, the training for the Write-Your-Own agents is terrible. 
There is not enough of it. It is too short. And many of the 
agents that I have talked to do not have sufficient information 
to translate to their customers what the reform act means.
    Also, there is a large population of buildings in the 
Special Flood Hazard Areas that do not have flood insurance, 
and they have not for a long time. They do not have an agent 
that they can talk to. So reliance on flood insurance agents is 
not a good way to get the word out.
    Also, important professional groups like surveyors and real 
estate agents have not been informed properly, and those should 
be our partners. We need to talk to them, NFIP needs to talk to 
them, and likewise local government officials.
    And, finally, NFIP has not provided sufficient information 
to the public in a form that they can understand and digest. It 
has too much jargon. It assumes too much knowledge about the 
flood program. So in response, we need NFIP to do a much better 
job communicating with these groups of people that I just 
pointed out.
    I want to say that I applaud NFIP's recent release of the 
specific rating guidelines. Those were formerly in a black box, 
a secret document that talked about how FEMA rated below base 
flood elevation policies. That is public now. It will help me a 
great deal in communicating risk to my public.
    But the reform act problems go well beyond those associated 
with education and outreach. We have talked about 
affordability. I am very concerned that the unaffordability of 
flood insurance will cause people to drop their flood 
insurance, and they drop it by paying all cash. And what is 
happening in Oregon is that all-cash buyers are buying 
buildings at fire-sale reduced prices, and they are not 
insuring those buildings, which does not make Oregon resilient 
against flood.
    I am going to skip some things here, but I do want to point 
out that mitigation is extremely important, and I think we need 
to think creatively about it. We need to encourage partial 
mitigation, which involves installing flood vents, perhaps 
filling in below-grade crawl spaces, and removing mechanicals 
from basements to help reduce costs, even if those actions do 
not result in a lowest floor that is above the base flood 
elevation.
    And then I want to talk briefly about those people who 
bought policies after July 6th and before October 1, 2013--July 
6, 2012, and October 1st. They are seeing renewals at full-risk 
rates. They need to get an elevation certificate, and they 
cannot afford it, and I have already received many tearful 
phone calls. And if there is anything I want to get out of this 
hearing, it is that policy has to be reversed. Those people 
need to be extended--have the subsidized rates extended to them 
for a longer period of time.
    And then my last point is I would like to see NFIP 
institute an ombudsman program so that policyholders can have a 
venue to go to when they have rating issues. And because the 
insurance agents are not well informed, they cannot get through 
to their underwriters, they cannot get through to the FEMA 
insurance specialists, they do not know they exist, I get the 
phone calls, and I really think that FEMA needs to have an 
ombudsman function.
    Thank you.
    Chairman Merkley. Thank you very much.
    Mr. Ellis.

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

    Mr. Ellis. Thank you. Good afternoon, Chairman Merkley, 
Ranking Member Heller. I am Steve Ellis, vice president of 
Taxpayers for Common Sense, a national nonpartisan budget 
watchdog. Thank you for inviting me here today to testify on 
the National Flood Insurance Program, something I have worked 
on pretty much my whole professional career.
    TCS works on this issue with SmarterSafer.org, a broad 
coalition of taxpayer, environmental, and insurance interests, 
in favor of promoting public safety through fiscally sound, 
environmentally responsible approaches to natural catastrophe 
policy. We applaud the work this Committee did last Congress to 
address the long-term sustainability of the NFIP by enacting 
the Biggert-Waters Flood Insurance Reform Act. Even with flaws, 
this legislation eliminates wasteful subsidies and moves flood 
insurance premiums to more closely match rates that are charged 
in the private market. It is critical that these reforms 
proceed without delay.
    When the NFIP was established in 1968, Congress was warned 
by the task force reviewing the issue that subsidies could 
``invite economic waste of great magnitude.'' Well, $25 billion 
later, we know how that story unfolded. Although the subsidies 
were largely envisioned to be limited and short term, they were 
not. As of July 2013, out of 5.5 million policies, an estimated 
1.15 million subsidized policies remain. And even after the 
reforms of Biggert-Waters, 62 percent of the subsidized 
policies will remain until rate maps are updated.
    The availability of taxpayer-subsidized Federal flood 
insurance over the last several decades made it financially 
attractive to develop in high-risk areas and helped fuel the 
coastal development boom that increased the program's risk 
exposure and losses. Even worse, the program's benefits have 
flowed disproportionately toward repeatedly devastated 
properties and to the wealthy. Repetitive loss properties 
represent only 1 percent of all policies, yet have accounted 
for 25 to 30 percent of the cost of claims. And the Government 
Accountability Office study has found that, even after reform, 
subsidized NFIP policies are skewed toward counties in the top 
deciles of median home value and income.
    As a consequence of the Biggert-Waters reforms, several 
types of properties that had previously received subsidies 
would gradually--25 percent a year--have their rates increased 
until they meet full risk-based rate, most notably second 
homes, businesses, and severe repetitive loss properties. In 
addition, properties in newly mapped or remapped areas would 
not have a subsidized grandfathered rate. Instead, the new rate 
would also be gradually implemented 20 percent per year.
    While this may be financially painful in some cases, the 
new rates incentivize practices that reduce risk and in the 
long run will be good for the individual and for taxpayers. Not 
surprisingly, this effort has been met with some backlash, a 
lot of which we saw here. In some cases, homeowners are facing 
steep increases in premiums after years, even decades, of 
paying the same subsidies rates. As a result, there has been a 
series of efforts in Congress to delay flood map modernization 
or delay rate increases.
    There have been charges of exorbitant rate increases to as 
much as $30,000 a year. It is worse, considering the underlying 
data that would lead to such a rate. Considering the maximum 
amount of flood insurance a homeowner can obtain under NFIP is 
$250,000 and an additional $100,000 for contents, that would 
basically mean that FEMA expects this property to be a total 
loss every decade. Either this individual and their property 
are at incredible risk, in which case delaying the rate 
increase sends absolutely the wrong signal; or the possible 
rate increase is overstated, as seems to have been the case 
when more recent information came to light, knocking the price 
down by half as much or more in some cases. Also, it appears it 
is a relatively small number of total properties involves. If 
there is a mapping error, Biggert-Waters set up a process to 
deal with it. Communities have to accept the map. Congress 
should develop solutions to help deal with affordability, not 
try to delay reality.
    It may be politically expedient or popular locally to delay 
reforms, but what may make good local politics generally makes 
bad insurance and public policy. People deserve to know the 
costs and risks of where they live, and taxpayers deserve to 
have those who choose to live in harm's way pick up their share 
of the tab. Furthermore, delaying map implementation reduces 
rates for some, but policy owners remapped with reduced flood 
risk will keep higher premiums.
    Delay also does not change the total amount of premium 
revenue the program must generate as a whole, meaning everyone 
will have to pay more. If Congress wants to deal with the issue 
of affordability, there are responsible ways to accomplish this 
goal. Any responsible approach to affordability should be 
temporary, targeted to those who need it, account for existing 
protection of homes, and independent of the NFIP rate 
structure.
    FEMA's updated flood maps, which are crucial to the 
program's success or failure, must be up to date, accurate, and 
based on the best available science to be effective.
    There is an increasing fatigue around the country with the 
cost of the NFIP program among taxpayers. To delay or derail 
the reforms enacted a year ago would put this program on 
perilous footing, fiscally, politically, and existentially. The 
reforms must be enacted as planned. Affordability should be 
addressed.
    Thank you very much for the opportunity to testify, and I 
look forward to answering any questions you might have.
    Chairman Merkley. Mr. Birnbaum.

  STATEMENT OF BIRNY BIRNBAUM, EXECUTIVE DIRECTOR, CENTER FOR 
                        ECONOMIC JUSTICE

    Mr. Birnbaum. Thank you, Chairman Merkley, Ranking Member 
Heller. Thank you for the opportunity to speak about the impact 
of the Biggert-Waters Act on the availability and affordability 
of flood insurance. My name is Birny Birnbaum. I am executive 
director of the Center for Economic Justice. I have been asked 
to talk about force-placed flood insurance, a topic on which I 
have worked for many years as an insurance regulator, a 
consumer advocate, and consulting economist. My comments today 
are presented on behalf of CEJ, the Consumer Federation of 
America, United Policyholders, the Center for Insurance 
Research, the National Fair Housing Alliance, and the National 
Consumer Law Center.
    So what is force-placed insurance? Well, federally 
regulated lending institutions may not make a loan secured by 
improved real estate in a Special Flood Hazard Area unless the 
improved property serving as collateral for the loan is covered 
by a minimum amount of flood insurance. If a borrower fails to 
maintain the required voluntary flood insurance, the mortgage 
servicer will force-place insurance and charge the borrower. 
Consequently, a borrower cannot simply opt out of the NFIP to 
escape high flood premiums. In fact, force-placed flood is 
likely to cost the borrower much more than an NFIP policy.
    Federal law also provides for forced placement of flood 
insurance in the event the borrower fails to maintain the 
required amount, and this law places the responsibility on the 
lender or servicer to determine if a lapse in required coverage 
has occurred and to notify the borrower of such a lapse prior 
to force-placing.
    So the way these force-placed policies work is a mortgage 
servicer purchases a master or group policy from an insurance 
company, and it provides automatic coverage for any property in 
the servicer's portfolio if the coverage, the voluntary 
coverage, lapses. When coverage lapses and coverage is issued, 
force-placed coverage is issued, then the insurance company 
charges the mortgage servicer, who in turn charges the 
borrower. So this is a group policy that provides automatic 
coverage, and that is the key to force-placed insurance.
    In terms of the force-placed market, data are not available 
for force-placed flood alone, but they are available for all of 
force-placed insurance, including force-placed hazard, which is 
like fire insurance.
    The overall data show that force-placed insurance premiums 
quadrupled from 2004 to 2011, and during this period, loss 
ratios were very low. And by ``loss ratio,'' I am talking about 
the claims that were paid under these force-placed policies 
compared to the premiums that were collected. The loss ratios 
over the period were 25 percent. That compares to over 60 
percent for homeowners. What that means is these very low loss 
ratios suggest that force-placed rates were significantly 
excessive. However, force-places rates are inflated because of 
reverse competition, and what that means is the insurance 
companies market to the mortgage servicers, not to the 
consumers. And by marketing to the mortgage servicers, they 
actually pay kickbacks, and they build the cost of those 
kickbacks into the force-placed insurance premiums. So what 
happens is that consumers pay inflated amounts for this force-
placed insurance.
    Investigations by the New York Department of Financial 
Services and Fannie Mae have shown that FPI rates are 
significantly inflated by kickbacks in the form of commissions, 
captive reinsurance agreements, and free or below-cost 
services.
    So there is going to be an explosion in the amount of 
force-placed flood insurance in the coming years, for three 
reasons:
    First, more borrowers will now be required to purchase 
flood because of new flood maps. With more borrows required to 
purchase, there is going to be more force-placed flood.
    Second, the rate hikes are going to make it unaffordable 
for consumers who are not going to be able to purchase the 
NFIP, but they are still going to have to pay for somehow 
force-placed flood.
    And then, third, as lenders and servicers face greater 
penalties from Biggert-Waters for failure to ensure required 
flood insurance is placed, servicers are more likely to err on 
the side of too many force-placed placements. And, in fact, 
testimony in hearings before the New York department indicated 
that something on the order of 10 to 20 percent of force-placed 
insurance was wrongly placed.
    So there is little consumer protection for excessive and 
unreasonable force-placed rates. There are only a few States 
that have looked at this issue. New York has led the pack. But 
even their efforts have focused largely on hazard force-placed 
insurance. Other States have not taken any action to force cuts 
in these inflated force-placed insurance rates. Federal 
agencies have addressed some of the issue with force-placed, 
but nothing to address the excessive costs or the affordability 
issues.
    There is one opportunity, and that is with the Federal 
Housing Finance Authority. In March of this year, Fannie Mae 
was about to embark on a direct purchase program of force-
placed insurance and insurance tracking, and by purchasing it 
directly, Fannie was able to use its market power to actually 
reduce the cost of force-placed insurance they estimated by 
hundreds of millions of dollars a year. Just as they were about 
to award that and implement that program, their conservator, 
FHFA, directed them not to go ahead with that. Instead, FHFA 
kept the status quo in place of Fannie reimbursing mortgage 
servicers for the inflated premiums and has embarked on a 
program of looking at ways to stop some of the kickbacks. But 
to date, FHFA has not taken any action on that.
    So, consequently, FHFA is in a singular position to address 
problems with FPI flood by allowing Fannie and Freddie to 
implement this direct purchase program and also to stop some of 
the other abuses that are going on.
    Thank you.
    Chairman Merkley. I thank all of you for your testimony, 
and we will go 5 minutes and go back and forth as long as 
everyone would like to continue.
    Senator Heller. Sure.
    Chairman Merkley. I want to start with the last testimony 
on force-placed insurance. Was there any indication by the 
Director of FHFA as to why he was blocking Fannie from 
providing this much more economical solution to homeowners?
    Mr. Birnbaum. Well, the public information about why FHFA 
did not want Fannie to go ahead with that was that they said 
that Fannie did not have enough data. Basically the reasons 
were, in the view of the consumer groups, fairly weak. We 
thought that Fannie had studied the issue for over a year. They 
had gone through a request for proposal process. They had 
provided a very detailed set of requirements that clearly 
indicated they understood what was going on. So we and other 
consumer groups were dismayed when FHFA pulled the plug on 
that.
    Chairman Merkley. And is there anything at all in Biggert-
Waters that would provide authority to fend off this sort of 
predatory forced-placement insurance?
    Mr. Birnbaum. There is one provision that will come into 
effect in mid-2014. In its mortgage servicing rules, at the 
beginning of this year, the Consumer Financial Protection 
agency basically made a requirement for mortgage servicers to 
pay the premium on voluntary insurance to keep that insurance 
in place if the borrower had an escrow account and if the 
payment of the premium would keep the policy in place. In other 
words, if the policy was canceled for some other reason other 
than nonpayment of premium, the rule would not apply. So keep 
the policy, voluntary policy, in place if it is a loan with an 
escrow account.
    Biggert-Waters requires that all loans that have flood 
insurance have an escrow account for flood. So when you combine 
those two, the requirement in Biggert-Waters and the rule under 
the Consumer Financial Protection agency, it will ensure that 
voluntary NFIP policies remain in place. However, that does 
nothing to address the affordability issues of the NFIP, and it 
also does not address excessive retroactive billing. It is a 
small step, but it is not addressing what the concerns of this 
Committee are.
    Chairman Merkley. Absolutely. I really appreciate your 
testimony on that topic when you talked about the 25-percent 
loss ratio. I just want to be absolutely clear what we are 
talking about is that for every $4 in premiums you bring in, 
you are paying out $1 in damages, and that is a pretty 
extraordinary situation.
    Mr. Birnbaum. Yes. And just to be clear, that is for all 
force-placed insurance, so that would include force-placed 
flood and force-placed hazard. But, yes, there is no question 
that force-placed insurance, because of the noncompetitive 
market and the kickbacks to mortgage servicers, the prices have 
been highly inflated.
    Chairman Merkley. Thank you very much, and I wanted to ask 
you one question that is related to your expertise, and that is 
the discussion that many of us have had up here about the 
affordability study that was required under the law to be done 
within 270 days. Is there any real reason that FEMA could not 
have completed that in 270 days?
    Mr. Birnbaum. Well, I have done a number of insurance 
availability and affordability studies. I was chief economist 
at the Texas Department of Insurance. Before that I was chief 
economist at a Texas agency dedicated to representing consumers 
on insurance issues. So I have done many studies on insurance 
availability and affordability. And when I heard that FEMA 
needed to do such a study, I outlined what was needed for that, 
and it did not approach 3 years and $750,000.
    There are data that are available today from the NFIP, from 
lender-placed insurers, from voluntary insurers, from the 
Census Bureau, that you could do an order-of-magnitude analysis 
of availability and affordability of flood insurance. So I 
think that can be done in a far shorter time frame.
    Chairman Merkley. Thank you very much.
    Senator Heller. Mr. Chairman, thank you, and I want to 
thank the panelists for taking time today to be with us. I 
really do appreciate your testimony, what you have to say, and 
all those that have sat through the last couple of hours and 
listened to some of these comments and questions that we have 
raised.
    Mr. Ellis, I have a couple of questions for you, if you do 
not mind, having specifically to do with private flood 
insurance. Obviously, we want to make sure that everybody has 
proper and affordability flood insurance, but the concern is 
obviously the viability and the fiscal solvency of NFIP. What 
is the viability today of private flood insurance?
    Mr. Ellis. There is some private flood insurance available. 
A lot of it is supplemental since it only--under NFIP you can 
only insure $250,000 for your property, so somebody who has 
more valuable property can get the supplemental onto that.
    There is also some private insurers--there are certain 
parts of the country that are not eligible for flood 
insurance--the coastal barriers that are designated that way 
since 1982--and so they are serviced as well by a private 
market. I mean, it is more expensive than what you can get 
through NFIP, which is why generally it has not really 
developed. But one of the things--there are other countries 
that actually--many other countries that actually insure 
privately that do not have a national or a Government program. 
And so part of our hope would be that eventually when we move 
toward more actuarial rates that we will actually develop a 
real insurance system. We are not in 1968 anymore. We can 
actually map and price risk much more effectively than we could 
before, and so these are actually underwriteable events that in 
the 1960s we just did not have the modeling and the technology.
    Senator Heller. Ms. Landrieu brought up the Netherlands; 
half the population lives below sea level. Do they have a 
national flood insurance program or is it mostly done through 
private entities?
    Mr. Ellis. I would have to get back to you on that for the 
record, but I often hear about the Netherlands in the whole 
context of flood protection, and I would say that the ocean 
presents an existential threat to the existence of the 
Netherlands. And so they devote a significant amount of GDP to 
maintaining their flood protection structures.
    And the other thing I would point out is that under the 
Flood Insurance Program--and I do not necessarily agree with 
this, but this is the rule--if you have 100-year protection, if 
you have protection from the 1-percent event, you do not have 
to buy it. So, I mean, really in a lot of places where--so in 
the case of the Netherlands, there probably are parts where 
under our rules they would not even have to buy flood insurance 
because they have that adequate--or that level of protection 
that we have deemed to be adequate.
    Senator Heller. Let me change for a little bit over here to 
some means testing. What are your thoughts on means testing the 
NFIP policies?
    Mr. Ellis. I think that is going to be one of the ways to 
go forward on affordability, and the fact is that, you know, 
you have millionaire homeowners that would be--that under the 
approaches that legislators have put forward about delaying the 
maps or delaying the rate increases, it kind of repeats the 
same problem that we had initially in the Flood Insurance 
Program in that everybody gets subsidized whether they really 
need the subsidies or they do not. And so any issue dealing 
with affordability we really believe--one is people should 
still know their real rates; we should not do it within the 
rate structure. It should be money that comes in on the side of 
that.
    Two is that it should be done potentially through a 
surcharge on everybody's flood insurance policy so that we keep 
it within the program, we are not burdening the taxpayer 
anymore.
    And it needs to be means-tested so that we are really only 
helping those that need the help and not a lot of these second-
home owners that have been getting these subsidies for decades.
    Senator Heller. Thank you.
    Chairman Merkley. Thank you. I want to turn first, Ms. 
Shirley, to a note that you put in your testimony about those 
folks who are buying homes between July 2012 and October 2013, 
and they are getting a subsidized rate. I understand upon 
renewal--and I want you to clarify this. Is it upon a 1-year 
renewal, they get a 1-year policy, then upon renewal of that 
policy, their rates will go to the unsubsidized?
    Ms. Shirley. Yes, as soon as--the first renewal after 
October 1st they will lose their subsidy and go to an 
unsubsidized rate. So some of those folks that bought very 
early may get one more year out of it, but most people who 
purchased after September would renew at full-risk rates after 
1 year.
    Chairman Merkley. After 1 year.
    Ms. Shirley. Right.
    Chairman Merkley. And so when folks bought homes with this 
subsidized flood insurance, was there kind of a big red page in 
the closing package that says when you renew in a year, your--
and, by the way, if you can give us a few examples of what kind 
of rate increases we are talking about, I think I have heard 
tenfold, and I do not know if that is legitimate or not. But, 
anyway, a big red warning that says, hey, your $500-a-year 
flood insurance will go to $5,000 and so forth? Is there a 
warning system? And what kind of rate increases are we talking 
about?
    Ms. Shirley. There was absolutely no way that a buyer could 
have known that those rates would increase until March 29, 
2013, when FEMA announced how they were going to implement the 
program. So between July 2012 and March 2013, nobody knew that 
this was going to happen. After March 29th, I suppose you could 
make the argument that you should have known, but most people 
did not because there was no outreach.
    Chairman Merkley. So basically a 9-month period, no way of 
knowing, and then an additional 7-month period, virtually no 
notification about these rules. So there was no big red sheet 
in the closing package saying this is going to happen.
    Ms. Shirley. Correct.
    Chairman Merkley. So are you basically saying we are going 
to have perhaps hundreds of thousands of new homeowners who are 
going to have deep shock when they receive a notice saying that 
their insurance is going to go up? And if we talk about a 
family that has a $250,000 house in a 100-year flood zone, what 
type of increase are we talking about?
    Ms. Shirley. Well, it depends on the nature of the house. 
You need an elevation certificate to ascertain that. But it 
could easily be three times and could be as much as 10 times 
more expensive. And in the coastal zones, it could exceed that.
    Chairman Merkley. So it is not unreasonable to say a house 
could go from $500 to $2,500 or $500 to $5,000?
    Ms. Shirley. That is correct. Not unreasonable.
    Chairman Merkley. Am I correct in believing that if a 
family has to pay $1,000 more a year in flood insurance, one of 
the costs, if you will, that is essentially equivalent to 
dropping the value of the home $20,000 since $1,000 at 5 
percent pays for a $20,000 mortgage?
    Ms. Shirley. I do not know the exact ratio, but I can tell 
you that homes are not selling in some particularly flood-prone 
areas. The market is frozen, partly because of uncertainty and 
partly because of affordability.
    Chairman Merkley. Now, I think you spoke to basically all-
cash buyers coming in to basically take advantage of the fact 
that the seller has suddenly lost the value in their home 
because the new buyer has to buy this really expensive policy.
    Ms. Shirley. Correct.
    Chairman Merkley. And so we are creating something where 
homeowners who have built up equity over their lifetimes, maybe 
they have owned the home 30 years, are seeing that equity 
devastated and essentially given away to the advantage of those 
who are well off enough to pay full cash for the house.
    Ms. Shirley. That is right. And those well-off buyers do 
not buy flood insurance, making us more vulnerable and less 
resilient as a State.
    Chairman Merkley. Which brings me to a different question, 
but I am going to come back to it.
    Senator Heller. Let me, Ms. Shirley, continue with you on 
disputes. Based on your testimony that you gave earlier, you 
mentioned that NFIP policyholders with rating issues have 
limited access to the dispute resolution process?
    Ms. Shirley. Correct.
    Senator Heller. You also mentioned that these FEMA regional 
offices do have insurance specialists that are on staff, but at 
times are not easily accessible. Can you expand on that? And 
what do you mean by that? Are they not returning phone calls, 
emails? What is the concern that you have there? And is it a 
publicity issue? I mean, do they not publicize to citizens how 
they can get access?
    Ms. Shirley. OK. So the general way that FEMA wants 
homeowners to dispute their policy is to go through the 
insurance writers who go through their underwriters, and 
generally--well, often that does not work. They cannot resolve 
it. And when the insured get to that point, it is not well 
known who they should call. So they end up calling their 
Senators or their Congress people, and they end up calling me, 
and then we refer them to an insurance specialist up at FEMA 
Region 10. So the insurance specialists--the existence of the 
insurance specialist is not well publicized, and by the time 
they call me, they are very, very frustrated because they have 
been everywhere else first.
    So I want to have it more visible where people should call 
when they have gone through their insurance companies and they 
cannot resolve their problem.
    Senator Heller. I mentioned early on in my discussions with 
the Administrator about my concerns about this communication, 
and you heard his answer. And I think you raised the same 
concerns about their communications with real estate agents, 
Government officials, frankly, the public at large, about the 
changes in the Biggert-Waters bill.
    After hearing what the Administrator said and answering my 
question on this frenzy that we have out there right now, did 
the Administrator answer any of your concerns?
    Ms. Shirley. No. There is not enough information out there. 
And it is so full of jargon and it is difficult to understand. 
Unless you understand flood insurance, it is just not useful 
information. And FEMA does have a Web site that has two or 
three brochures on it, but it is not sufficient information, 
and it does not talk about--it does not address those who are 
not insured now and who will be asked to purchase flood 
insurance in the future. And it really does not talk about the 
renewals of these policies purchased after July 6, 2012.
    Senator Heller. Very good. Thank you, Mr. Chairman. I am 
done.
    Chairman Merkley. Mr. Ellis, I hear your argument for 
policies that are based on a full and fair assessment of the 
risk, but I want to ask you about a couple of anomalies that we 
have heard about. For example, you buy a house, you are not in 
a flood zone. You are 10 years into the mortgage, and then you 
get a notice saying, well, we have remapped--we, the community 
or the FEMA officials or whomever, have remapped, and you know 
what? We had it wrong. You have never seen a flood. Nobody in 
50 years has seen a flood, but by our calculations, by our 
modeling, you are in a 100-year flood zone, and now you are 
going to be required to buy this unsubsidized insurance that 
may be several multiples of your mortgage.
    Is there a fundamental unfairness to that? And if there 
is--I say ``unfairness'' in the sense that you made a deal 
based on the public information you were given at the time of 
purchase. And the public has turned around and changed that 
information in a way that has huge financial consequences for 
you. If there is a fundamental unfairness, how should we 
address it?
    Mr. Ellis. Well, I certainly think that the individual will 
feel that it is very unfair to them, and I do not necessarily 
disagree in that respect, although geography changes and, you 
know, to some extent, the idea that everything is static from 
the day you bought your home to the end of your 30-year 
mortgage kind of loses perspective when you think about this. 
And I think that when people keep talking about the rates, they 
forget to think about the fact that we are telling these people 
they are at risk, they should purchase flood insurance, because 
they are in the 1-percent chance of flooding every year if they 
are in the 100-year floodplain. And so we are doing them a 
disservice if we say, ``You do not need to purchase flood 
insurance because you were not in the floodplain before and we 
will just keep ignoring that,'' and you are going to end up 
being flooded, and you are going to get five grand, ten grand 
from FEMA in a Small Business Administration loan, which is not 
what people need when they are flooded.
    And so I think there has to be--there is a balancing that 
needs to be done here, Mr. Chairman, and so it is something 
where we need to address, if it is an affordability issue. If 
it is not an affordability issue, then I think that people need 
to be paying the full freight. We are doing the rest of the 
country a disservice if we are not doing this. And we are doing 
this person a disservice because they can do things to mitigate 
their risk, to actually make them less vulnerable in the 
future. And so that way, when the flood does come, because, as 
Administrator Fugate mentioned, you know--I think I wrote down 
he has been to too many places that have never flooded before 
until there was a disaster. And so these are places that are at 
risk or we have determined to be at risk, and so I would hope 
that they would purchase their flood insurance, and if it is an 
affordability issue, then we need to deal with it.
    Chairman Merkley. So a family says to you, you know, this 
policy which is going to cost $5,000, that was never 
anticipated because I was not in a flood zone when I bought the 
house, this was the difference between whether or not my son or 
daughter attends, can afford to attend college; it is a 
difference on whether my kids in grade school can pay the 
activity fees to be involved in sports or my children in high 
school can join the debate team or whatever fees, says, you 
know, this is America, I should be able to decide for myself 
whether I want to spend that $5,000. If I want to bear that 
risk, shouldn't I be able to bear that risk? This was not part 
of the contract when I bought this house. Shouldn't it be up to 
me whether I want to buy flood insurance? Now being fully 
informed that I am being told there is a higher risk than 
anybody thought, shouldn't it be up to me to decide whether or 
not to buy that insurance or to buy other valuable things for 
the success of my family?
    Mr. Ellis. Certainly I am sympathetic to the individual. I 
mean, this is the way the program has been structured. But, you 
know, the problem is that, as Americans, we are often--we are 
very big-hearted, and so instead of--you know, part of the 
reason why the Flood Insurance Program was created was because 
there was so much ad hoc disaster assistance going out there to 
help people out after disasters, and so they wanted to create a 
program like this.
    My concern would be that when that property does eventually 
flood, and my sympathy would go to that family, then they would 
be trying to get more disaster assistance because we are a big-
hearted country, and we are kind of soft-headed when it comes 
to that sort of thing. We are not tough on it.
    So I think that there is a challenge, and I am concerned in 
this debate, Mr. Chairman, in that we are seeing a lot of the 
tail wagging the dog. We are seeing a lot of these extreme 
circumstances that are trying to dictate the overall policy. 
You have people talking about, lawmakers talking about $30,000 
policies or $28,000 policies, and so then they want to delay 
all the maps across the country. That does not--you know, that 
is the exception making the rule to me, Mr. Chairman, and I am 
concerned about that, especially because some people will 
benefit from their new maps, at least as far as in 2010--and I 
think that Administrator Fugate was addressing this to Senator 
Warren. He said it goes both ways, and he did not get to finish 
his comment, but I know in 2010 he said that they were mapping 
as many properties out of the floodplain as they were mapping 
in. I do not know if that is still the case, but I do know he 
said that then. And so some of these are broad solutions trying 
to deal with a very narrow instance.
    Chairman Merkley. Mr. Birnbaum.
    Mr. Birnbaum. Yes, a couple of comments. First, it is 
patently unfair. Yes, it is really important that consumers see 
the true price of protection. Risk-based pricing is important 
so consumers can make investment decisions that are rational. 
You do not want to do a bait-and-switch where you come in, you 
think that it is a $500-a-year cost to protect yourself from 
flood, and it turns out to be a $6,000-a-year thing. But that 
is exactly what happened.
    You know, if that had happened with a mortgage, if a 
mortgage company gave you a mortgage that was $1,000 a month 
and then all of a sudden said now it is going to be $1,800 a 
month or $1,600 a month, with barely notice, the Consumer 
Financial Protection Bureau would be all over that.
    You know, there are millions of people in California who 
are at risk of earthquake damage, and yet they have the ability 
to sort of opt out of buying earthquake insurance.
    So, you know, the issues that you raise are important; 
however, you know, the things that Steve says are also valid. 
It is vitally important that consumers see what the cost is of 
protection, because without that you cannot make a rational, 
long-term decision about whether that is a good investment for 
you, whether you can afford it.
    More importantly, if you do not have the risk-based price, 
you do not have the proper incentives for loss mitigation. That 
is just critical. If there should be one overriding goal of 
Federal policy, it should be--for natural disaster policy, it 
should be to promote sustainable and resilient communities. And 
what that means is that when the Government makes money, it 
should not be subsidies. If somebody is having a problem with 
affordability, then that money should go in as an investment in 
loss mitigation to enable that consumer to pay the affordable 
amount of insurance. But continuing to do subsidies is the 
Government sort of spending money without any return. Making 
those investments in loss mitigation is the Government making 
investments that have a very positive return for that consumer 
and for society at large.
    Chairman Merkley. I have one more question to throw out to 
you all, and it really stems from what Senator Landrieu said. 
She said up until we had--and I am not sure which storm it was.
    Mr. Ellis. Katrina.
    Chairman Merkley. It was Katrina. Up until we had this big 
natural disaster, Katrina, essentially the rates were 
sufficient to keep the fund solvent, and she waived that sheet 
in the air. And it made me start thinking about what it is we 
are insuring against. Are we insuring about garden variety 
flooding or the really big exceptional hurricanes? And are we 
in the course--and should there be a difference between those 
two things? And if, in fact, what we are insuring against is 
the hurricanes, then are the costs of the insurance as 
distributed around the country actually fair to those who do 
not live in hurricane zones? In other words, are we essentially 
charging the entire country on these policies more than should 
be there to cover the river coming up and so forth to cover 
these great national disasters?
    And so I will just throw those two thoughts out to all of 
you. Do we really have two different kinds of things embedded 
in these insurance policies? And are the costs of the insurance 
policies actually fair to folks who are in different parts of 
the country in terms of the risk being reflected accurately by 
the premium? Does anyone want to take on those questions? Mr. 
Ellis.
    Mr. Ellis. Yes, Mr. Chairman. Well, one, it is instructive 
to look at how the total--the way the system is set up is that 
they have the average historical loss year, and that is before 
Biggert-Waters was--every year except for what FEMA decided 
were extraordinary years, so they left out 2005, which had 
three of the largest storms, natural disasters, three of the 
top 10 in our country's history as far as loss, and then 2011, 
because of the Midwest flooding, and so they basically threw 
those out or discounted them very, very heavily. And then that 
set the total amount of premium that the program was supposed 
to achieve to then basically offset a year, and then that 
trickles down to everybody's individual premiums to aggregate. 
You know, it is like algebra, basically.
    After Biggert-Waters, everything had to be included, 
including the 2005 loss year and the 2011 loss year. I think 
there is an argument to be made that that should be discounted 
at least somewhat, but clearly, if Sandy has any lesson, it is 
that 2005 is not as big of an anomaly as we all wish it was. 
And so that has to be priced into there somewhere.
    And then, also, Mr. Chairman, where I think you are 
absolutely on the merit is that obviously now that is being 
dispersed to everybody, and that is part of the reason why I 
say if you delay the rate increases for one group of 
properties, everybody else's rates are going to go up because 
the total amount that they are trying to achieve is exactly the 
same. So that side of the equation, that side of the equals 
sign, is not changing. And so that is going to end up 
increasing everybody's flood insurance premiums in other 
places, and I would argue that is not fair.
    And then, last, where it is a little bit different, though, 
is obviously people are paying the risk of their particular 
property. So if you live in a hurricane zone, if you live in a 
storm surge area, you are going to pay a lot more, even at a 
base flood elevation, than somebody who lives in Bend, Oregon. 
You know, and so there is that issue as well, so there is a bit 
more concentrating on the risk associated with a particular 
property.
    Chairman Merkley. So, in short, the folks who live on a 
stream in Oregon are not subsidizing a hurricane zone on the 
Atlantic coat.
    Mr. Ellis. Probably to some extent there is. There is 
cross-subsidies in the program. There are less cross-subsidies 
post Biggert-Waters than there were before.
    Chairman Merkley. Does anyone else want to jump into this 
conversation? Ms. Cackley.
    Ms. Cackley. Well, I think Mr. Ellis is correct in terms of 
the changes in Biggert-Waters did change the cross-subsidies. 
But there still are some because of the way the premium is set. 
It is not exactly--and especially because FEMA does not have 
the information they need for elevation certificates for every 
property, you cannot--you do not have a true risk, true 
actuarial fair rate for each property that needs one.
    Chairman Merkley. Thank you.
    Mr. Birnbaum.
    Mr. Birnbaum. I guess what I would add to this is that if 
you want to make sure that rates are truly accurate, then what 
you want to do is privatize the Flood Insurance Program. You 
want to sort of utilize the ability of the insurance industry 
to do the risk modeling and to do the pricing that they do for 
other types of perils. And there would be some real advantages 
to privatizing the Flood Insurance Program. It would provide 
flood coverage at a much more efficient and cost-effective 
level. You would not have a second administrative layer. You 
would not have that 30 percent Write-Your-Own commission. You 
would not have all of the stuff going on between whether it is 
a wind loss or a flood loss and all of the costs associated 
with trying to figure out whether it is covered by the wind 
policy or the flood policy.
    So there are some real advantages to sort of looking at 
privatizing the Flood Insurance Program, both in terms of 
accuracy of pricing but also in getting the insurance industry 
more involved in loss mitigation. They do not have any skin in 
the game. If they are on the hook, then all of a sudden you 
will see them doing what European insurers are doing, which is 
getting extremely active in all sorts of flood loss mitigation 
and entering into partnerships with policyholders to invest in 
loss mitigation. So I just throw that out as something to 
consider.
    Mr. Ellis. We support that.
    Chairman Merkley. Yes, Ms. Cackley.
    Ms. Cackley. I just wanted to point out that GAO is in the 
process of doing a study on the possibilities of privatizing 
the system. It was one of our mandates under Biggert-Waters. 
FEMA was also mandated to do a similar study. So you will be 
getting that information by the end of the year.
    Chairman Merkley. Great. Well, I am going to wrap this up. 
Everyone has been very patient in staying here a long time, and 
thank you very much. I am struck by the fact that we started 
the hearing, hearing about how essentially a private system 
broke down because the policies were too high and people were 
not buying them. And now we essentially are trying to create 
risk-based policies that kind of reflect what the market should 
do, and the prices are so high that it is breaking down. And we 
started to hear some of the stories about that today, and then 
the recommendation here at the close that maybe we should go 
back to the private side.
    So we have got a lot to wrestle with. I thank very much my 
Vice Chair, Senator Heller, for being very supportive of 
holding this hearing and all the colleagues who came to weigh 
in today. I think we are going to hear a tremendous amount from 
our constituents. As Ms. Shirley pointed out, we are going to 
hear a lot of constituents screaming when they go to renew and 
find out that the deal that they thought they made when they 
bought that new property during that 9-month period turns out 
to be a deal that is very different than they anticipated with 
no warning. And so I think we have got a lot to address.
    With that, I adjourn the hearing. Thank you.
    [Whereupon, at 5:05 p.m., the hearing was adjourned.]
    [Prepared statements, responses to written questions, and 
additional material supplied for the record follow:]
                 PREPARED STATEMENT OF W. CRAIG FUGATE
   Administrator, Federal Emergency Management Agency, Department of 
                           Homeland Security
                           September 18, 2013
Introduction
    Good afternoon Chairman Merkley, Ranking Member Heller and 
distinguished Members of the Subcommittee. My name is Craig Fugate, and 
I am the Administrator at the U.S. Department of Homeland Security's 
(DHS) Federal Emergency Management Agency (FEMA). It is an honor to 
appear before you today on behalf of FEMA to discuss the National Flood 
Insurance Program (NFIP) and our efforts to implement the Biggert-
Waters Flood Insurance Reform Act of 2012.
    In my testimony today, I will discuss the NFIP; the changes FEMA is 
making as a result of the Act; the role of flood maps and levees; and 
steps property owners can take to mitigate against flood damage.
Flooding and the Need for a National Program
    Flooding has been, and continues to be, a serious risk in the 
United States. Most insurance companies have historically excluded 
flood damage from homeowners insurance because of adverse selection--
only those most susceptible to flooding will purchase coverage. To 
address this need, Congress established the NFIP in 1968 to make flood 
insurance available, identify flood risks and encourage sound local 
flood risk management. The NFIP is administered by FEMA.
    The NFIP was broadened and modified with the passage of the Flood 
Disaster Protection Act of 1973 and other legislative measures. It was 
further modified by the National Flood Insurance Reform Act of 1994 and 
the Flood Insurance Reform Act of 2004. The most recent reforms have 
come after numerous short-term reauthorizations and lapses in Program 
authority over the past several years.
    About 40 percent of the U.S. population lives in counties that 
border the ocean or Great Lakes and are directly or indirectly affected 
by flood risk, and most U.S. counties contain rivers and streams that 
present flood hazards. Moreover 5.6 percent of the U.S. population 
lives in the highest risk coastal and riverine flood hazard areas, 
making flooding the most costly and prevalent natural risk in the 
United States. Additionally, sea level rise, climate change, 
urbanization, and other factors may lead to even more Americans living 
in high flood risk areas in coming years.
    The NFIP serves as the foundation for national efforts to reduce 
the loss of life and property from flood disasters that may occur. The 
Program is designed to insure against, as well as minimize or mitigate, 
the long-term risks to people and property from the effects of 
flooding, and to reduce the escalating cost of flooding to taxpayers. 
The NFIP works closely in partnership with Write Your Own (WYO) 
insurance companies to market, sell, administer, and adjust claims for 
policyholders. By encouraging and supporting mitigation and floodplain 
management efforts, the NFIP is estimated to save the Nation $1.6 
billion annually in avoided flood losses.
    Today, almost 22,000 communities in all States and territories 
participate in the NFIP, with 5.6 million NFIP policies providing over 
$1.2 trillion in coverage.
    The NFIP was, by statute and design, not actuarially sound. 
Specifically, 20 percent of policyholders, including many of the NFIP's 
highest risk structures, paid premiums that were less than actuarially 
sound and the Government was subsidizing on average 60 percent of the 
loss. The debt resulting from Hurricanes Katrina and Sandy, the two 
costliest storms in NFIP history, illustrate the financial challenges 
for the NFIP that the Biggert-Waters Flood Insurance Reform Act of 2012 
aimed to address. Significant concentrated losses in high policy 
coverage areas could set the program up for future losses beyond the 
authorized borrowing authority. In addition, the financial challenges 
are heightened due to subsidies and grandfathering that were 
established to encourage older structures to participate in the Program 
and make premiums affordable for these policyholders in high risk 
areas.
    Pursuant to the statute before the Biggert-Waters Flood Insurance 
Reform Act of 2012, FEMA established subsidies for owners of existing 
homes and businesses built prior to the initial Flood Insurance Rate 
Map (FIRM) and made them eligible to purchase insurance at subsidized 
rates. In other words, a building built before flood risk was known, 
and at an elevation below the 1-percent annual chance flood, could be 
insured at a rate substantially less than their real risk rate.
    The NFIP collects more than $3.5 billion in annual premium revenue, 
and FEMA estimates that an additional $1.5 billion annually is needed 
from subsidized policyholders.
    FEMA also established grandfathered rates to address rates for 
structures built in compliance with existing FIRMs that experienced 
subsequent increases in flood risk. FEMA allowed those structures to 
grandfather according to the risk identified on the earlier FIRM, and 
did not adjust premiums to reflect the current risk. Grandfathered 
properties are not subsidized by the Program, and FEMA establishes 
cross subsidies within classes of structures to maintain the actuarial 
integrity of the rate structure.
    This annual premium shortfall during catastrophic flooding events, 
such as Hurricanes Katrina and Sandy, required FEMA to use its 
statutory authority to borrow funds from the U.S. Department of 
Treasury. These funds were used to pay covered flood damage claims to 
policyholders. Although payments have been made to reduce this 
obligation, $24 billion in debt remains.
Biggert-Waters Flood Insurance Reform Act of 2012
    Congress determined that further reforms were needed to make sure 
the NFIP was financially sustainable.
    To execute these reforms, Congress passed the Biggert-Waters Act. 
The law required changes to all of the major components of the program, 
including flood insurance, flood hazard mapping, grants, and the 
management of floodplains. Many of the changes are designed to 
strengthen the fiscal soundness of the NFIP by ensuring that flood 
insurance rates more accurately reflect the real risk of flooding. The 
changes are being phased in over time, beginning this year. Biggert-
Waters also reauthorized the NFIP for 5 years, which injected 
confidence and stability into the real estate and mortgage markets.
Removal of Subsidies and Grandfathered Rates
    Biggert-Waters ushered in changes that will lead to premium rate 
increases for some--but not all--policyholders over time.
    Today, I would like to focus on the sections of the Act that remove 
subsidies and grandfathered rates.
    Currently, approximately 20 percent of policyholders, representing 
approximately 1.1 million of the 5.6 million NFIP policies, now pay 
subsidized rates. As FEMA implements the changes stipulated in the 
Biggert-Waters legislation, these policyholders will eventually pay 
rates that reflect actual risk to their properties. The remaining 80 
percent of policyholders will not see increases as a result of this 
change, although it is possible that their rates will increase if, in 
the future, new maps reveal higher risk under the phase-out of 
grandfathered rates required by the legislation.
    Specifically, the following changes for subsidized policyholders 
will be or have already been implemented due to the legislation:

    Beginning January 1, 2013, owners of properties previously 
        eligible for subsidized rates on nonprimary/secondary 
        residences in a Special Flood Hazard Area (SFHA), saw a 25 
        percent increase annually in their rates, as required by the 
        law, which will continue until rates reflect true risk.

    We anticipate that under a final rulemaking, owners of 
        substantially damaged or improved properties previously 
        eligible for subsidized rates will see a 25 percent rate 
        increase annually, as required by the law, until rates reflect 
        true risk.

    Beginning October 1, 2013, owners of subsidized policies on 
        business/nonresidential properties and severe or repetitive 
        loss properties in a Special Flood Hazard Area will see a 25 
        percent rate increase annually, as required by the law, until 
        rates reflect true flood risk.

    All subsidized properties, including primary residences, will move 
immediately to actuarial rates if:

    The policy lapses;

    The property suffers severe, repeated, flood losses; or

    The property is purchased.

    Each property's risk is different. Some policyholders may reach 
their true risk rate after less than 5 years of increases, while other 
policyholder increases may go beyond 5 years to get to the full risk 
rate required by the new law.
    With regard to grandfathered rates, additional changes to premium 
rates may also occur upon remapping. We are evaluating when it is 
administratively feasible to implement these rate changes.
    When a map is revised or updated, grandfathering will no longer be 
available. Grandfathering is applied in two situations: to allow 
policyholders in a Special Flood Hazard Area built in accordance with 
flood maps to keep rates that reflected that compliance even if a later 
map would increase their premium; and to enable structures built 
outside of the Special Flood Hazard Area and later remapped into the 
Area to purchase insurance based on an average cross-subsidized rate. 
The Act replaces the policy of offering grandfathered rates with a 5 
year phase-in to rates that reflect the current risk when a FIRM is 
revised or updated.
The Role of Flood Maps and Levees
    Mapping and identifying flood hazards enables informed, smart 
development and encourages communities to adopt and enforce minimum 
floodplain management regulations. These efforts minimize the financial 
impact of flooding on individuals and businesses, and mitigate the 
effects of flooding on new and improved structures.
    FEMA consistently releases new flood maps and data, giving 
communities across America access to helpful, authoritative data that 
they can use to make decisions about flood risk, enabling safer 
development and rebuilding following disasters. FEMA is required to 
review community flood maps every 5 years and assess whether to revise 
or update them based on current conditions.
    Flood hazard conditions are more accurately captured now as a 
result of FEMA's Risk Mapping, Assessment, and Planning (Risk MAP) 
program.
    FEMA began implementing the Risk MAP program at the start of Fiscal 
Year (FY) 2009. Risk MAP not only addresses gaps in flood hazard data, 
but uses that updated data to form a solid foundation for risk 
assessment and floodplain management, and to provide local, State, and 
tribal governments with information needed to mitigate flood-related 
risks. Risk MAP is introducing new products and services extending 
beyond the traditional digital flood maps produced in Flood Map 
Modernization, including visual illustration of flood risk, analysis of 
the probability of flooding, economic consequences of flooding, and 
greater public engagement tools. FEMA is increasing its work with 
officials to help use flood risk data and tools to effectively 
communicate risk to citizens, and enable communities to enhance their 
mitigation plans.
    FEMA has initiated 600 Risk MAP projects affecting 3,800 
communities and addressed their highest priority engineering data 
needs, including coastal and levee areas.
    Regarding levees, FEMA has also reviewed its approach to mapping 
flood hazards with respect to nonaccredited levees. FEMA recognizes 
that levee systems that do not fully meet the requirements for 
accreditation may still provide some measure of flood risk reduction.
    As a result, FEMA is introducing a new approach of targeted 
modeling procedures to replace the previous ``without levee'' approach, 
that did not recognize a nonaccredited levee as providing any level of 
protection to communities behind the levees during the base (1-percent-
annual-chance) flood. These procedures better characterize actual 
conditions that a community may encounter when addressing nonaccredited 
levees or levee systems.
    FEMA devised this new approach by leading a multidisciplinary 
project team comprised of representatives from FEMA, the U.S. Army 
Corps of Engineers, and experts from the academic and engineering 
communities to evaluate technical options for nonaccredited levees. The 
FEMA-led team explored a broad spectrum of levee analysis and mapping 
procedures. Based on the results of the development, testing, review 
and public comment efforts, FEMA created and is implementing a levee 
analysis and mapping approach that is flexible and will produce more 
precise flood hazard maps and supporting data where levee systems are 
involved.
    FEMA will use these new procedures to produce Flood Insurance Rate 
Maps (FIRMs), Flood Insurance Study reports, and related products for 
communities and Tribes impacted by nonaccredited levee systems. A core 
goal of the new procedures includes identifying more precisely the 
flood hazard associated with levee systems and reflecting the results 
in the mapping. An important outcome of the effort is also increasing 
the credibility of FIRMs where nonaccredited levee systems exist.
    The new approach, accompanied by operating guidance, will be 
applied to a limited number of projects during FY2013, and other future 
mapping projects will be prioritized as additional funding is 
available.
    FEMA Regional Offices will be in contact with communities to 
identify participants for a discussion about their local levee system 
and to facilitate a Local Levee Partnership Team as needed.
    This team will be comprised of FEMA and community representatives 
to provide input and guide the implementation of the approach.
Educating Stakeholders and Implementing the Provisions of Biggert-
        Waters
    FEMA has undertaken significant steps to inform its policyholders 
and stakeholders about these changes to the NFIP, including educating:

    Insurance agents selling flood insurance;

    Realtors, the banking community, floodplain managers, 
        insurance executives, and others;

    Political leadership at local, State, tribal, and Federal 
        levels;

    Disaster survivors so they can be informed should they 
        choose to rebuild; and

    Affected policyholders, who will receive notification from 
        their insurance company in their bills explaining changes.

    The Act has also necessitated programmatic changes to the NFIP 
itself, including its processes and regulations. Areas specifically 
impacted by Biggert-Waters include actuarial sciences, insurance 
underwriting, floodplain management, and floodplain mapping.
    FEMA is actively meeting with affected communities throughout the 
country to discuss these changes. This summer, Associate Administrator 
for Federal Insurance and Mitigation David Miller traveled to Louisiana 
and Mississippi to see and hear first-hand the potential impacts of the 
law on policyholders. Additionally, many FEMA staff participated in 
outreach meetings with national and regional associations and 
communities to provide information on the new law. While in the Gulf 
Coast region, it was very clear that there are challenges to 
implementing the law when premiums may exceed $10,000 or in more high 
risk areas where homes are not easily elevated or bought out. In the 
Gulf Coast, many policyholders are required to have insurance and live 
near the industry jobs that support our national economy. In States 
with recent disasters like New Jersey and New York, communities are 
going through the process of adopting new maps as a result of increased 
risks found in mapping completed both pre- and post-disaster.
The Role of Mitigation in Affordability
    As the NFIP transitions toward full risk rates, there will be 
significant increases in premiums for some subsidized and grandfathered 
structures. Individuals whose properties are at risk of flooding may 
lack the resources to make prudent risk management and mitigation 
decisions, including the decision to relocate, mitigate, or purchase 
adequate insurance.
    Pursuant to the provisions in Biggert-Waters, FEMA is charged with 
completing a study with the National Academy of Sciences to explore 
ways to: encourage/maintain participation in the NFIP, methods to 
educate consumers about the NFIP and flood risk, and methods for 
establishing an affordability framework for the NFIP, including 
implications of affordability programs for the NFIP and the Federal 
budget. The Academy estimates that it will likely take at least 2 years 
to complete the study due to the need to obtain data on policyholders 
and their incomes.
    There are steps the public can take to minimize their risk of 
damage should a flood occur, as well as to reduce premiums. FEMA's 
Hazard Mitigation Assistance (HMA) programs provide funds for projects 
that reduce the risk to individuals and property from natural hazards. 
These programs enable mitigation measures to be implemented before, 
during and after disaster recovery. Local jurisdictions develop 
projects that reduce property damage from future disasters and submit 
grant applications to the State. The States submit applications to FEMA 
based on State criteria and available funding. The HMA programs 
include:

    Hazard Mitigation Grant Program (HMGP)--The Hazard 
        Mitigation Grant Program provides grants to implement long-term 
        hazard mitigation measures after a major disaster declaration. 
        The purpose of HMGP is to reduce the loss of life and property 
        due to natural disasters and to enable mitigation measures to 
        be implemented during recovery from a disaster.

    Mitigation Assistance Grants--The Mitigation Assistance 
        Grants program provides funds from the National Flood Insurance 
        Fund on an annual basis so that measures can be taken to reduce 
        or eliminate risk of flood damage to buildings insured under 
        the NFIP.

    FEMA encourages property and business owners concerned about 
potential rate increases as a result of Biggert-Waters to contact their 
local community planning, emergency management, or State Hazard 
Mitigation Officer to learn more about implementing these mitigation 
efforts.
Conclusion
    FEMA administers the NFIP to help communities increase their 
resilience to disaster through risk analysis, risk reduction, and risk 
insurance. The NFIP helps individual citizens recover from the economic 
impacts of flood events, while providing a mechanism to reduce exposure 
to flooding through compliance with building standards and encouraging 
sound land-use decisions.
    FEMA looks forward to working with the Congress as Biggert-Waters 
is implemented.
    Thank you again for the opportunity to appear before you today. I 
am happy to answer any questions you may have.
                PREPARED STATEMENT OF ALICIA P. CACKLEY
   Director, Financial Markets and Community Investment, Government 
                         Accountability Office
                           September 18, 2013


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                PREPARED STATEMENT OF CHRISTINE SHIRLEY
    National Flood Insurance Program Coordinator, Planning Services 
    Division, Oregon Department of Land Conservation and Development
                           September 18, 2013
    Good morning Chairman Johnson, Ranking Member Crapo, and Members of 
the Committee. I am Christine Shirley, National Flood Insurance Program 
Coordinator for the State of Oregon. I am pleased to offer testimony on 
behalf of Oregon's 34,700 NFIP policyholders, and the estimated 
additional 150,000 buildings owners in Oregon who do not have flood 
insurance, but probably should because their buildings are located in 
the Special Flood Hazard Area.
    Since April 2, 2013, soon after the National Flood Insurance 
Program (NFIP) announced implementation of section 100205 of the 
Biggert-Waters Flood Insurance Act of 2012 (Reform Act), we have made 
over two dozen presentations to land use planners, real estate agents, 
surveyors, and the public about NFIP premium rate and rule changes 
brought about by the Reform Act. I am here today to give you a field 
report. I will touch on outreach, affordability and mitigation. Let me 
say right away fear and confusion about the reforms are prevalent among 
professionals and the public alike. I will speak more about that later. 
First I want to explain a little about how Oregon implements the 
National Flood Insurance Program.
The NFIP Supports Oregon's Planning Principles and Goals
    The Department of Land Conservation and Development (DLCD), the 
State's land use planning agency, is also Oregon's NFIP coordinating 
agency. DLCD's guiding principles are to:

    Provide a healthy environment;

    Sustain a prosperous economy;

    Ensure a desirable quality of life; and

    Provide fairness and equity to all Oregonians.

    Since the mid 1970s the National Flood Insurance Program has played 
an important role in support of these principles. For those unfamiliar 
Oregon's statewide land use planning program, it originated in 1973 to 
provide protection of farm and forest lands, conservation of natural 
resources, orderly and efficient development, coordination among local 
governments, and citizen involvement. This is accomplished by requiring 
city and county governments to adopt comprehensive plans that address 
each of 19 statewide planning goals. Goal 7 directs counties and cities 
to adopt comprehensive plans that reduce risk to people and property 
from natural hazards. Participation in the NFIP satisfies Goal 7's 
requirement to address flood hazards. As a result, virtually all of 
Oregon's residents have access to NFIP flood insurance (only 2 very 
small cities newly mapped and with minimal flood risk have yet to 
participate in the NFIP).
Development of Accurate Flood Insurance Rate Maps Requires Sufficient 
        Funding
    The NFIP's Flood Insurance Rate Maps (FIRMs) provide the basis for 
Oregon cities and counties to identify and manager development in flood 
prone areas. By and large, over the years, we have found the FIRMs to 
reasonably depict where flooding is most likely to occur. We are 
confident that refined modeling, cartographic, and analysis techniques 
implemented through the RiskMAP program, and by Oregon's own Department 
of Geology and Mineral Industries as a Cooperating Technical Partner 
with FEMA, will result in even more accurate and informative FIRMs and 
derivative risk analysis products.
    Such map accuracy requires sufficient funding. Appropriations for 
mapping have been reduced by more than half from the 2010 level of $220 
million. The Administration's budget request for FY2014 was $84 
million. The Homeland Security Appropriations bills (one passed by the 
House; the other reported out of committee in the Senate) both provide 
$95 million. While this reflects Congressional recognition of the 
importance of accurate flood maps, it is, nevertheless, still a major 
reduction. We urge Congress to increase appropriations for flood 
mapping back to 2010 levels as soon as possible.
Poor Risk Communication and Outreach Undermines Trust
    Our problem is not so much with the quality of FIRMs, but rather 
with risk communication. Many people who reside in Special Flood Hazard 
Areas have never experienced flooding at their location and they simply 
don't believe it's possible, so they question the veracity of the 
FIRMs. Sometimes they're right. DLCD regularly counsels landowners on 
how to use FEMA's Letter of Map Change process to refine Special Flood 
Hazard Area boundaries on their properties.
    One year after enactment of the Reform Act of 2012 our risk 
communication challenge has increased, not only because of changes 
brought about by the Act, but also by how the NFIP has explained and 
implemented section 100205: Reform of Premium Rate Structure. It 
appears to us that NFIP intends to rely on flood insurance agents to 
disseminate information about changes brought about by the Reform Act. 
We find this communication model flawed for several reasons:

    Training for NFIP Write-Your-Own flood insurance agents is 
        woefully inadequate;

    Too many Oregonians with buildings located in Special Flood 
        Hazard Areas are not insured by the NFIP and therefore lack a 
        means to obtain information about the consequences of the 
        Reform Act;

    Important professional groups, particularly surveyors and 
        real estate agents, have not been informed by the NFIP of 
        impending changes;

    Likewise, local Government officials and staff have not 
        been provided with digestible and sufficient information to 
        address their citizens' concerns or assess their own 
        vulnerabilities;

     NFIP has not provided information to the public that 
        allows building owners to make informed decisions about their 
        individual situations.

    As a result, building owners and the general public are receiving 
contradictory and confusing information, which has had the effect of 
undermining the credibility of the NFIP. This unfortunate side effect 
has made it even more difficult for NFIP Coordinators like myself to 
communicate the benefits of carrying flood insurance. Let me address 
each of these bullet points in turn:

NFIP Agent Training
    Training for agents that sell NFIP flood insurance is woefully 
inadequate. Many agents are not able to explain to their customers how 
the NFIP works and most are not able to advise clients on how to reduce 
flood insurance premiums by making simple building modifications.
    NFIP sponsored exactly one instructor-led flood insurance agent 
training in Oregon in 2013. Unfortunately I heard from insurance agents 
who attended the class that this general training did not address 
Reform Act section 100205 changes in sufficient detail to allow them to 
effectively advise clients on its consequences.
    Outreach about availability of instructor-led classes and webinars 
also is lacking. DLCD learned just days before that the above mentioned 
training was about to be canceled due to lack of participation. 
Fortunately, we convinced our Insurance Division to announce the class 
to their mailing list, filling the class. Likewise, H2O Partners, 
NFIP's flood insurance training contractor, has offered webinars that 
cover section 100205 changes but these have not attracted enough agent 
participation in Oregon.
    NFIP must be provided with sufficient resources to develop a 
comprehensive outreach and training program; one that does not 
passively rely on Web sites to notify Write-Your-Own agents of training 
opportunities. More training opportunities must be provided because 
well trained agents bolster the credibility of the NFIP.
Reliance on Agents To Inform Their Clients
    It is an unfortunate truth that flood insurance take-up rates in 
Oregon, and nationwide, are too low. Relying on insurance agents to get 
the word out about changes brought about by the Reform Act ignores a 
large segment of the affected population. NFIP needs to develop public 
service announcements and printed material suitable for wide 
distribution to traditional and nontraditional media outlets.
Outreach to Surveyors, Real Estate Agents, and Other Professionals
    Real estate agents and surveyors are on the front line of 
implementing Reform Act changes. These professionals speak directly 
with building owners, often before an insurance agent does. DLCD has 
found these professionals to be interested and receptive to information 
about the Reform Act. So much so that our technical support to NFIP 
communities has suffered as a result of numerous requests to speak at 
their professional gatherings. Word of mouth has kept us busy since 
April 2, 2013, during which time we have addressed 15 real estate 
associations and 3 surveyor chapter meetings. We have started 
coordinating with statewide professional organizations to take over 
this training function so that we can get back to our regular NFIP job 
duties. NFIP needs to reach out to professional groups with literature 
suitable for distribution to their clients as well as with training 
materials and opportunities.
Outreach to Government Officials and Staff
    While it might not be obvious why Government officials and staff 
need to know about flood insurance reform, in fact, because they manage 
floodplain development per the NFIP, they are often the first people 
building owners call to explain why flood insurance costs are 
increasing and what can be done to reduce them. In addition, any loss 
of property values brought about by the Reform Act will be felt 
directly via decreased property tax revenue, and even increased 
foreclosure rates. Oregon's assessors offices have expressed interest 
in learning more about the NFIP reforms, as have city and county land 
use and planning offices. NFIP Coordinators are the best conduit to 
local government, however, we have had to spend an inordinate amount of 
time deciphering the Write-Your-Own Bulletins intended for insurance 
agents to explain the consequences of the Reform Act to local 
government. While these Bulletins are the most reliable source of 
information they are also full of jargon. Read out of context they can 
be confusing and misleading. NFIP needs to develop easy to understand 
educational material specifically targeted to local government 
officials and staff.
Public Outreach
    Much of the specific material NFIP has prepared for the public 
about consequences of the Reform Act has been directed to those 
affected by Superstorm Sandy. This and other material produced by NFIP 
has taken a worst-case-scenario approach to explaining the consequences 
of not elevating flood-damaged buildings. For example, in a widely 
circulated fact sheet NFIP estimated future flood insurance costs using 
the maximum amount of building plus contents insurance available for 
residential structures, even though most building owners will not 
purchase this much insurance. We find this material to be unnecessarily 
alarming. People stop reading as soon as they see that flood insurance 
costs could exceed $10,000 per year. Until recently, with public 
release of NFIP's Specific Rating Guidelines on September 5, it was 
virtually impossible for even an experienced flood insurance agent to 
provide more realistic information about potential flood insurance 
costs under the Reform Act when a building owner's lowest floor was 2 
or more feet below base flood elevation. We applaud release of these 
Guidelines as this information will help us develop realistic cost 
ranges for the types of flood risks and building values typical for 
Oregon. The Guidelines also help us better understand what drives costs 
up and what building owners might do to reduce these costs. DLCD 
understands how difficult it is to present information about costs in 
the absence of specific information about a building's characteristics 
and how easy it is to create false expectations. Nonetheless, we 
recommend that NFIP develop public outreach material that more 
accurately reflects the range of costs typical of certain classes of 
buildings--or at least work with States to help us develop such 
material tailored to our demographics and building values.
Flood Resilient Oregon
    Problems with the Reform Act go beyond those associated with 
education and outreach. The Reform Act does not sufficiently address 
affordability or mitigation of flood risk. We fear that, together, 
these deficiencies will cause Oregon to be less resilient to flooding 
than before the Reform Act was passed.
    Oregon is committed to being a flood resilient State; a strong 
National Flood Insurance Program helps us achieve our resiliency goal 
because insured residents don't require Federal disaster declarations 
to begin recovery. Even in the event of a Federally declared disaster, 
we've learned that well insured communities recover faster. As such we 
support efforts to move the NFIP to sound financial footing. We are 
concerned, however, that the rate increases required by section 100205 
will not help Oregon become more flood resilient unless they are 
accompanied by programs to assist low- and moderate-income families 
afford adequate coverage and more attention is paid to mitigation.
New Construction in the Special Flood Hazard Area Does Not Support 
        Resiliency
    Oregon's mitigation strategy emphasizes acquisition. Acquired 
buildings are demolished and the land maintained as permanent open 
space, eliminating the potential for future flood damage and displaced 
families. It is discouraging to find a couple years later a new 
building being constructed in the Special Flood Hazard Area only a few 
hundred feet away from an acquired property. We urge Congress to pass 
legislation that limits the availability of flood insurance to existing 
buildings. NFIP flood insurance should not be offered to new 
development in the Special Flood Hazard Area.
Unaffordable Flood Insurance Does Not Support Resiliency
    Architects of the Reform Act picked what looked like low-hanging 
fruit--phasing out and removing subsidies to increase revenue on a 
class of properties that suffer disproportionate losses. This strategy 
alone may not result in anticipated revenue growth because phasing out 
subsidies for pre-FIRM buildings could actually discourage purchase of 
NFIP flood insurance. We've already had inquiries from buyers about 
where to buy private insurance. At least one jurisdiction in Oregon is 
contemplating offering a private community-based flood insurance 
program.
    Furthermore, in some areas of Oregon, those characterized by a high 
concentration of older buildings located in the Special Flood Hazard 
Area, the resale real estate market is frozen. Buildings are not 
selling until asking prices are dramatically lowered, attracting all-
cash buyers who purchase flood prone property at fire-sale prices and 
then don't purchase flood insurance. Sadly, not all of these cash 
buyers have the resources to self-insure against potential losses, 
leaving Oregon less flood resilient.
    Affordability is not only a problem for approximately 2,500 insured 
nonprimary residences, commercial buildings, and severe repetitive loss 
buildings in Oregon. Nor is it only an issue at the approximate 5,700 
insured pre-FIRM buildings expected to be sold in the near future. An 
estimated 35,000 pre-FIRM buildings in Oregon located in the Special 
Flood Hazard Area do not carry NFIP flood insurance. Owners of these 
buildings are already receiving notices from their lenders demanding 
that they purchase flood insurance within 45 days at full risk rates. 
Elevation Certificates also are needed from licensed surveyors at a 
cost of $500 to $1,000 each to properly rate the flood insurance 
policy. Many of these pre-FIRM buildings' lowest floors will be below 
base flood elevation resulting in expensive flood insurance. These 
unexpected costs have the potential to force families from their homes 
and businesses to close. This scenario is the result of the Reform 
Act's increased penalties for lender noncompliance with mandatory 
purchase requirements, but without sufficient attention paid to the 
consequences of unaffordability.
    As these examples illustrate, the complex issues surrounding 
affordability were not taken into account by the Reform Act. Section 
100236 only requires a study on affordability. We urge the NFIP and 
National Academy of Sciences to complete the affordability study 
mandated by the Reform Act as quickly as possible. In the meantime we 
urge Congress and the NFIP to consider implementation of a temporary 
means-tested voucher program for low- and moderate-income households 
such as that described in the recent Wharton School, University of 
Pennsylvania report ``Addressing Affordability in the National Flood 
Insurance Program: Means-Tested Vouchers Coupled with Mitigation 
Loans''. Congress also should consider acting on House passed bill 
providing for study of the feasibility of community based group flood 
insurance policies (H.R. 1135).
Mitigation Reduces Flood Losses and Increases Resiliency
    As important as affordability is, the ability to purchase flood 
insurance does not reduce flood losses. An insurance settlement to 
repair flood damage only ensures future losses. NFIP and FEMA must 
focus attention on mitigation.
    Oregon's experience suggests that it takes too long and consumes 
inordinate staff time to complete mitigation projects using FEMA grant 
programs. We recognize that this is not exclusively an NFIP issue, 
however, NFIP needs to think creatively about how to encourage 
mitigation before floods occur. For example: NFIP could encourage 
building owner to undertake building elevation projects on their own by 
refunding premiums back 5 years upon completion of the project. Without 
such incentives it could be difficult for building owners to both pay 
for flood insurance and mitigation. Loan or grant programs to provide 
up-front costs could be provided to low- and moderate-income families 
in lieu of premium refunds. NFIP would benefit by reducing risk 
exposure.
    Flood mitigation grants offered by the NFIP have traditionally 
focused on 100 percent solutions: elevate the lowest floor above the 
base flood elevation, or acquire and demolish flood-damaged buildings. 
Oregon has completed hundreds of such projects over the years. They 
work, but elevations and acquisitions are expensive, time consuming, 
and are difficult for States and local government to administer. We can 
only accomplish a handful of such projects each year.
    NFIP should promote innovations such as partial mitigation. Flood 
vent retrofits, moving utilities out of basements, or filling below 
grade crawlspaces can save the insured hundreds if not thousands of 
dollars per year and also reduce NFIP risk exposure. Oregon has 
calculated that partial mitigation is cost effective for many pre-FIRM 
buildings, even if these mitigation projects do not result in the 
lowest floor being elevated above the base flood elevation. Partial 
mitigation is inexpensive and is cost effective even if a building is 
fully mitigated later on. NFIP should develop a means-tested grant 
program to facilitate such partial mitigations, perhaps tied to a 
voucher program that assists with annual flood insurance costs.
Unfair Renewals at Full-Risk Rates on Policies Purchased Between July 
        6, 2012, and September 30, 2013
    It's bad enough not being able to sell a building because of 
buyer's fear of high flood insurance costs. What's worse is having 
purchased a pre-FIRM building between the time the Reform Act was 
signed on July 6, 2012, and when new rates go into effect on October 1, 
2013. According to NFIP Write-Your-Own Bulletin W-13016, published 
March 29, 2013, purchasers of pre-FIRM buildings located in the Special 
Flood Hazard Area were able to buy (and will continue to be able to buy 
until October 1) subsidized flood insurance policies, but these will 
renew at full risk rates, with premium increases amounting to possibly 
thousands of dollars per year. This implementation strategy denied 
those who purchased pre-FIRM buildings in the Special Flood Hazard Area 
between July 6, 2012, and March 29, 2013, any ability to make an 
informed decision about the long-term financial consequences of their 
purchase. No party in the deal could have known that these subsidized 
policies would renew at possibly very expensive full-risk rates. Even 
those who purchased pre-FIRM buildings after publication of NFIP's 
March 29, 2013, Bulletin can make the case that they were denied the 
ability to make an informed decision because of the NFIP's limited 
outreach to insurance agents and real estate professionals.
    DLCD has already received tearful phone calls from buyers who 
purchase pre-FIRM buildings last summer and are now facing unaffordable 
flood insurance renewal costs. The Palmer family in Eugene summed it up 
like this, ``It's one thing to buy a home knowing what you are in for. 
It's another to have an act of god cause a change that no one could 
have anticipated. But it's simply wrong to change the terms of an 
insurance contract at renewal in a manner that could force us out of 
our home when no flood event has taken place.'' We are generally not in 
favor of delaying implementation of section 100205 the Reform Act, 
except for on renewals of new policies purchased as a result of a real 
estate transaction made on or after July 6, 2012, and before October 1, 
2013. These policyholders should, as a matter of fairness, be allowed 
to keep their subsidy unless and until they suffer a flood loss.
Aggrieved NFIP Customers Lack a Venue To Resolve Problems
    NFIP policyholders with rating issues have limited access to a 
dispute resolution process. Although each FEMA regional office has an 
insurance specialist on staff, this person is not easily accessible to 
the insured. We urge NFIP to establish a visible ombudsman office to 
field rating disputes. Congress should fund FEMA to create such an 
office if NFIP lacks the authority or resources.
    Thank you for this opportunity testify.
                                 ______
                                 
                   PREPARED STATEMENT OF STEVE ELLIS
               Vice President, Taxpayers for Common Sense
                           September 18, 2013
    Good afternoon, Chairman Merkley, Ranking Member Heller, Members of 
the Subcommittee. I am Steve Ellis, Vice President of Taxpayers for 
Common Sense, a national nonpartisan budget watchdog. Thank you for 
inviting me here today to testify on the National Flood Insurance 
Program (NFIP).
    Taxpayers for Common Sense has advocated for reform of the National 
Flood Insurance Program since our inception 18 years ago. The need to 
remove the subsidies, shift toward risk-based rates, and develop a 
reserve fund became even clearer after the devastating hurricane season 
of 2005 left the program nearly $18 billion in debt to the taxpayer. 
The point became moot after Superstorm Sandy upped the debt load to 
roughly $25 billion and counting.
    Taxpayers for Common Sense appreciates the hard work done by this 
Committee to pass the flood insurance reform bill last summer. While we 
would have argued for even stiffer medicine, the bill represented a 
good step forward to make the program more responsible for all 
Americans. It is important that the reforms proceed as enacted and that 
any efforts to deal with affordability and map modernization be 
supplemental and not impede the effort to put the flood insurance 
program on sounder financial footing. There is an increasing fatigue 
with the cost of the program among taxpayers.
    TCS is allied with SmarterSafer.org, a coalition in favor of 
promoting public safety through fiscally sound, environmentally 
responsible approaches to natural catastrophe policy. The groups 
involved represent a broad set of interests, from free market and 
taxpayer groups to environmental and insurance industry groups. \1\ The 
depth and breadth of the coalition underscores the importance of making 
NFIP responsible.
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     \1\ Full list is available at www.smartersafer.org.
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Unintended Consequences
    It is important to understand how we came to this place: a Federal 
flood insurance program of 5.5 million policies that takes in $3.6 
billion in premiums and owes the Treasury roughly $25 billion.
    After years of ad hoc disaster aid being meted out by Congress, the 
National Flood Insurance Program was established in 1968 to create ``a 
reasonable method of sharing the risk of flood losses through a program 
of flood insurance which can complement and encourage preventative and 
protective measures.'' \2\ The program was to make up for a perceived 
lack of available private flood insurance. But even at the time 
Congress was warned that it was playing with fire. The Presidential 
Task Force on Federal Flood Control Policy wrote in 1966:
---------------------------------------------------------------------------
     \2\ P.L. 90-448.

        A flood insurance program is a tool that should be used 
        expertly or not at all. Correctly applied it could promote wise 
        use of flood plains. Incorrectly applied, it could exacerbate 
        the whole problem of flood losses. For the Federal Government 
        to subsidize low premium disaster insurance or provide 
        insurance in which premiums are not proportionate to risk would 
        be to invite economic waste of great magnitude. \3\
---------------------------------------------------------------------------
     \3\ U.S. Task Force on Federal Flood Control Policy, ``A Unified 
National Program for Managing Flood Losses'', August 1966. P. 17. 
Available at: http://www.loc.gov/law/find/hearings/floods/floods89-
465.pdf.

    Well, we know which way that story unfolded. Although subsidies 
were largely envisioned to be limited and short-term, they weren't. And 
while the program has encouraged standards and construction that help 
reduce flood risks for participating communities, the availability of 
taxpayer-subsidized Federal flood insurance over the last several 
decades made it financially attractive to develop in high risk areas. 
Along with other factors, NFIP helped fuel the coastal development boom 
that increased the program's risk exposure and losses.
    To foster increased participation, the NFIP did not charge truly 
actuarially sound rates, or increase rates based on previous loss 
experience. The program's goal of fiscal solvency is defined as 
charging premiums that will generate enough revenue to cover a 
historical average loss year. \4\ FEMA's average largely discounted 
catastrophic loss years in the equation, something a private insurer 
would have to take into account. The program covers any fiscal 
shortfalls by borrowing from the U.S. Treasury, which is a significant 
subsidy in itself, especially since the loans are virtually interest-
free.
---------------------------------------------------------------------------
     \4\ Hayes, Thomas L., and Neal, D. Andrew, ``Actuarial Rate 
Review'', Federal Emergency Management Agency. October 1, 2011. P. 5. 
Available at: http://www.fema.gov/media-library-data/20130726-1809-
25045-6893/actuarial_rate_review2011.pdf.
---------------------------------------------------------------------------
    NFIP's fiscal solvency was further challenged because properties 
that pre-date a community's involvement in the NFIP or the applicable 
flood insurance rate map (whichever is later) charitably enjoyed 
significantly subsidized rates, paying only 35-45 percent of their 
actual full-risk level premium, depending on certain assumptions. \5\ 
While the initial thought may be that because of their vulnerability 
these pre-FIRM (Flood Insurance Rate Map) properties would diminish 
over time, the Government Accountability Office estimates that 
1,153,193 subsidized policies remain. \6\ In 2011, FEMA put the 
percentage of properties in the NFIP that were receiving explicitly 
subsidized rates at more than 20 percent. \7\
---------------------------------------------------------------------------
     \5\ Congressional Budget Office, ``Factors Affecting Actuarial 
Soundness'', November 2009. P. 6. Available at: http://www.cbo.gov/
sites/default/files/cbofiles/ftpdocs/106xx/doc10620/11-04-
floodinsurance.pdf.
     \6\ Government Accountability Office, ``Flood Insurance: More 
Information Needed on Subsidized Policies'', July 2013. P. 14. 
Available at: http://www.gao.gov/products/GAO-13-607.
     \7\ Hayes and Neal. Supra Note 4 at 22.
---------------------------------------------------------------------------
    Furthermore, properties that experienced repetitive losses have 
made up a demonstrable and disproportionate amount of the program 
costs. A repetitive loss property is one that has had two or more 
claims of $1,000 over 10 years. These properties represent only 1 
percent of the total number of policies, yet account for 25 to 30 
percent of the cost of claims. \8\ Properties like one in Wilkinson, 
MS, that has flooded 34 times since 1978 and received payments worth 
nearly 10 times the home's $70,000 value. Or another property owner in 
Houston, TX, that has received $1.6 million worth of claims for a house 
worth $116,000. \9\ We need to help these people out--out of harm's 
way--and at the same time help the taxpayer who is stuck with the tab.
---------------------------------------------------------------------------
     \8\ Statement of Orice Williams Brown, Director Financial Markets 
and Community Investment, Government Accountability Office before the 
Senate Committee on Banking, Housing, and Urban Affairs. P. 7. http://
www.gao.gov/new.items/d11670t.pdf
     \9\ Frank, Thomas, ``Huge Losses Put Federal Flood Insurance 
Program in the Red'', USA Today. August 26, 2010. Available at: http://
usatoday30.usatoday.com/news/nation/2010-08-25-flood-insurance_N.htm.
---------------------------------------------------------------------------
Biggert-Waters and Beyond
    The Biggert-Waters Flood Insurance Reform Act of 2012 made many 
significant changes to the NFIP to help it become less fiscally 
reckless and to better inform policyholders of their flood risk.
    In Biggert-Waters, Congress helped address the long-term 
sustainability of the NFIP. As a consequence, several types of 
properties that had received pre-FIRM subsidies would have their rates 
increased by 25 percent a year until they met the full risk based rate. 
While this may be financially painful in some cases, the subsidies had 
served to disincentivize behavior and practices that would reduce risk 
and in the long-run be good for the individual and good for the 
country. The properties included:

    Nonprimary residences

    Severe repetitive loss property (four or more claims 
        exceeding $5,000)

    Properties that have received flood payments that in 
        aggregate exceed the fair market value of the property

    Business properties

    Property that since July 6, 2012, has sustained damage 
        exceeding 50 percent of the fair market value; or had 
        substantial improvements that exceed 30 percent of the fair 
        market value of the property

    New or lapsed policies

    Policies where the insured refuses mitigation assistance 
        (including relocation)

    It is important to recognize that policyholders are not being 
denied the ability to purchase flood insurance. This provision of the 
law simply eliminates the subsidized rates. Furthermore, while it may 
sound like a lot of affected properties, because pre-FIRM primary 
residences that maintain coverage are not included, 62 percent of 
policyholders (715,259 policies) with subsidized premiums would be 
unaffected by these changes. In reality, the biggest shift will be that 
second homes and businesses that used to claim 38 percent of the 
subsidized policies will now represent only 1.5 percent of the total. 
\10\
---------------------------------------------------------------------------
     \10\ Government Accountability Office. Supra Note 6 at 14.
---------------------------------------------------------------------------
    In addition, when flood maps are updated with any changes that 
increase rates, all properties will be subject to the new rates that 
will be phased in at 20 percent a year for 5 years. This effectively 
ends the previous grandfathering process where some properties retained 
the highly subsidized premiums for decades.
    Biggert-Waters also included several other reform provisions, 
including:

    Increased lender penalties from $350 to $2,000 per 
        violation, for failing to enforce mandatory purchase 
        requirements for properties in the Special Flood Hazard Areas 
        (SFHA--the 100 year, or 1 percent chance or more, floodplain).

    Dictates that FEMA set premium rates in aggregate that 
        would generate enough revenue to offset the true average 
        historical loss year (not discounting catastrophic years like 
        2005).

    Charge premiums that would generate revenue to create a 
        reserve fund to reduce borrowing from the Treasury. FEMA has 
        adopted a 5 percent surcharge on all premiums to develop the 
        fund.

    Other notable provisions regarded mapping: Biggert-Waters 
established a Technical Mapping Advisory Council to help FEMA improve 
accuracy, develop standards, and make recommendations on future 
conditions mapping to more accurately estimate risk. FEMA must 
incorporate any recommendations from this Council. There is also a 
Scientific Resolution Panel to arbitrate community appeals of maps 
using technical or scientific data.
Accurate Maps Are Critical
    The NFIP is driven by maps because geography ultimately determines 
flood risk. They determine the veritable alphabet soup of what flood 
zone your structure is in: A, V, X, or variants within each category. 
Your property could be in the 100-year floodplain or the 500-year 
floodplain; high-risk storm surge zone or special flood hazard areas. 
The maps are key to the program's success or failure because they 
define the Nation's flood risk and the policyholder responsibility. 
They must be up to date, accurate, and based on the best available 
science to be effective. This is why FEMA's map modernization program 
is critical to the appropriateness of Federal Government participation 
in the program and should not be delayed or side-tracked in any way.
    The Nation's floodplains are dynamic and fundamentally risky. Not 
just from natural forces, but also the impacts of development, weather 
patterns, and topographical changes. Areas that were previously less 
likely to flood could now be more likely. Levees that were adequate to 
provide 100-year protection a decade ago may provide far less due to 
poor maintenance or increased flood elevations due to increased runoff 
or new development.
    Not surprisingly, the map modernization effort has been met with 
some controversy. In some cases, homeowners are facing steep increases 
in premiums after years, even decades, of paying the same grandfathered 
pre-FIRM subsidized rate. While the uproar is understandable, it 
doesn't change the underlying circumstances or the risk or the need to 
manage the program responsibly. In some cases property owners that 
didn't have to purchase flood insurance under existing law now find 
themselves required to do so; others have been mapped out of the 
floodplain.
Help Those Who Need It
    It may be politically expedient and popular locally to delay map 
modernization or delay rate increases. But what may make good local 
politics generally makes bad insurance policy--and by extension with 
Federal flood insurance--bad public policy. People deserve to know the 
cost and risks of where they live. And taxpayers deserve to have those 
who choose to live in harm's way pick up their share of the tab.
    In communities affected by possible rate increases there have been 
a lot of rumors about enormous rate increases. One insurance agent in 
Plaquemines Parish, LA, estimated that under new maps, his flood 
insurance rate would go from $633 to $28,000. \11\ That would certainly 
give anyone sticker shock, but it is hard to square that rate with what 
the data to justify it would mean. The median home sales price in 
Plaquemines Parish fluctuated in 2012 but it is roughly between 
$200,000 and $250,000. \12\ Considering the maximum amount of flood 
insurance a homeowner can obtain under NFIP is $250,000 (and an 
additional $100,000 for contents) that would basically mean that FEMA 
expects this property to be a total loss every decade. If true, this 
individual and his property are at incredible risk, in which case 
delaying the rate increase sends absolutely the wrong signal. Or the 
possible rate increase is inflated, which seems to be the case in St. 
Charles Parish, where homeowners had been concerned about new $30,000 
rates. However as a recent newspaper story noted, the maximum rate was 
down to $15,000, although the only actual instances cited in the story 
are of $2,000 and $7,300. \13\ These rates are the result of new maps 
and the ending of grandfathering. The parish has indicated their 
interest in appealing the maps, which is their right and is an import 
part of the reformed program. Some technical changes may need to be 
made to the maps, which is something for FEMA and the Scientific 
Resolution Panel established by Biggert-Waters to consider. Defining 
the actuarially accurate rates and associated maps are critical to the 
long-term viability of a Federal flood insurance program. That is, the 
concern is not a matter of local frustration, but of the long term 
existence of a fiscally fragile program.
---------------------------------------------------------------------------
     \11\ Hughes, Siobahn, ``Flood Insurance Prices Surge'', Wall 
Street Journal. August 12, 2013. P. A3. Available at: http://
online.wsj.com/article/
SB10001424127887323446404579008922222799170.html.
     \12\ http://www.city-data.com/county/Plaquemines_Parish-LA.html
     \13\ Barnett, Kyle, ``FEMA Insurance Rates Not as High as 
Projected, But Still Unaffordable'', St. Charles Herald Guide. 
September 12, 2013. Available at http://www.heraldguide.com/
details.php?id=13049.
---------------------------------------------------------------------------
    In Congress, there has been a series of efforts to delay map 
implementation and rate increases. In both the House and Senate 
reported versions of the Fiscal Year 2014 Department of Homeland 
Security Appropriations bills there are provisions to deny funds ``to 
implement, carry out, administer, or enforce section 1308(h) of the 
National Flood Insurance Act.'' That section deals with premium 
adjustments that would result from updated maps. Depending on how it is 
interpreted, this provision could lead to at least a 1 year delay. Or 
even worse, by allowing new maps to be finalized but not allowing rates 
to be adjusted on the implementation dates--subsidized rates being 
grandfathered again until the next map update years from now. 
Conversely, this would deny any policyholder who would see their rate 
decrease in new maps from enjoying that rate reduction.
    There is other legislation that would delay map implementation or 
rate increases through a variety of means.
    None of these delay proposals deal with affordability or efficiency 
issues or recognize the very real challenges facing Government 
participation and continued national support for the National Flood 
Insurance Program. Furthermore the broad nature of the proposals means 
that millionaire homeowners get the same break that is being championed 
on the backs of those less well off. It also means that policyholders 
who were going to see their rates decrease with the new maps will be 
forced to continue to pay more. And lastly, because the total premium 
target, which is set by the average historical loss year, is unchanged 
by these individual delay proposals, every policyholder will have to 
pay more premium than they would otherwise to make up for continuing 
decades old subsidies. This is about fundamental fairness within the 
flood insurance program and eliminating the cross subsidies that have a 
few properties paying full freight while picking up the tab for 
properties that have enjoyed subsidized premiums for decades.
    While the argument to derail reforms centers on the issue of 
affordability, the data reveals the flood insurance program subsidies 
substantially benefit the well off. A GAO analysis found that the NFIP 
program is particularly generous to those in the top deciles of median 
household income and home value. The GAO reviewed the distribution of 
subsidized premiums by median home value and median income. It targeted 
351 counties \14\ that represented more than 70 percent of the 
remaining subsidized policies and 41 percent of total primary residence 
policies.
---------------------------------------------------------------------------
     \14\ GAO selected 351 counties nationwide, this included every 
county with more than 500 subsidized single unit primary residence 
policies and five counties in every State with the most remaining 
subsidized policies for single-unit primary residences.
---------------------------------------------------------------------------
    Its analysis found that more than a quarter of the remaining 
subsidized policies were in counties in the top decile for both median 
home value and median home income. Only 7 percent of the nonsubsidized 
policies were in those same counties. Furthermore, 43 percent of 
subsidized policies were in counties in the top decile of median home 
value and 69 percent were in the top two deciles. Overall, 76 percent 
of the subsidized and nonsubsidized policies were in counties in the 
top two deciles. The counties in the bottom two deciles had 0.4 percent 
of the subsidized policies and 0.2 percent of the total policies.
A Responsible Approach
    A critical role of a Federal flood insurance program is to inform 
people of their flood risk so they can take steps to financially 
protect their own investments. Rates provide an important price signal 
of risk.
    If Congress wants to deal with the issue of affordability, there 
are responsible and well-understood ways to accomplish this. The 
Wharton Risk Management and Decision Processes Center outlines one 
strategy. The Association of State Floodplain Managers details another. 
For Taxpayers for Common Sense, any responsible approach to 
affordability would be:

    Self-contained--the taxpayer should not be asked to take on 
        a further burden to support this program. If an affordability 
        policy is undertaken, a small surcharge should be placed on all 
        flood insurance policies to prefund the account.

    Targeted--One of the underlying problems of subsidized 
        flood insurance is that the subsidies flow to wealthy vacation 
        beach house owners as well as those of modest means. The 
        affordability measures must be available only on a means-tested 
        basis.

    Temporary--This should be a short term program to help 
        policyholders deal with sticker shock. A long-term program will 
        undercut the important risk information provided by the price 
        signals.

    Independent--The aid should be vouchers or some other 
        assistance that is outside the NFIP rate structure so that it 
        doesn't undercut the price signals of risk.

    Helpful--Obviously aid is helpful, but the funding should 
        allow the policyholder to use it for mitigation as well as rate 
        relief.

    Logical--Properties should get premium credit for the level 
        of protection that they currently have, even if the flood 
        protection isn't greater than 100-year protection. Last minute 
        maneuvering stripped a provision from Biggert-Waters that would 
        have allowed this.
Conclusion
    The National Flood Insurance Program is a narrow program. There are 
5.5 million policies, 3.6 million of which are for primary residences 
and another 1.7 million for second homes. But there are 132.3 million 
housing units in the United States. \15\ This means that while only 4 
percent of housing units nationwide have flood insurance, those 
policyholders are roughly $25 billion in debt to American taxpayers.
---------------------------------------------------------------------------
     \15\ http://quickfacts.census.gov/qfd/states/00000.html
---------------------------------------------------------------------------
    It took extraordinary amount of effort in Congress to increase the 
NFIP borrowing authority by $9.7 billion after Superstorm Sandy, and 
that was to enable the program to pay off claims to policyholders. This 
demonstrates there is fatigue and impatience with this program that is 
$25 billion in debt. To delay or derail the reforms enacted a year ago 
would put this program on perilous footing, fiscally, politically, and 
existentially.
                  PREPARED STATEMENT OF BIRNY BIRNBAUM
            Executive Director, Center for Economic Justice
                           September 18, 2013


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



        RESPONSES TO WRITTEN QUESTIONS OF SENATOR HELLER
                      FROM W. CRAIG FUGATE

Q.1. We are trying to ensure that everyone has proper and 
affordable flood insurance coverage while also ensuring the 
fiscal solvency of the overall National Flood Insurance 
Program. The further development of the private flood insurance 
market could be a reasonable option for some Americans. 
Biggert-Waters specifically requires lenders to accept private 
flood insurance.
    With the National Flood Insurance Program in such debt; 
would it be beneficial to have more private flood insurance 
policy options available to take some of the burden off of the 
NFIP?
    With some NFIP rates increasing do you view private flood 
insurance as a viable tool for some consumers to find lower 
cost options?
    How has FEMA been encouraging other regulators such as the 
Federal Reserve, FDIC, and OCC to issue guidance to industry 
lenders to accept private flood insurance policies as proper 
flood insurance coverage?

A.1. In regard to the current NFIP debt of $24 billion, private 
flood insurance could be both a benefit and a detriment. It 
could be a benefit in that private flood insurance could take 
on much of the current NFIP policyholder base and thus greatly 
lessen the amount of additional future debt that the Program 
might incur from future flood catastrophes. However, it could 
also be a detriment to the NFIP's ability to ever payoff its 
current $24 billion debt--fewer policyholders would reduce the 
amount of free cash flow the Program would experience during 
light loss years--it could be that in light loss years, the 
Program still wouldn't have enough cash remaining after paying 
claims and operating expenses to service the interest on the 
debt.
    Private flood insurance would create competition. It is 
possible some homeowners could find lower cost options for 
flood insurance as a result of private market competition. Some 
homeowners may also find that private market rates are higher 
than the rates currently offered by the NFIP. At this point, we 
cannot anticipate how many could see lower rates due to private 
market competition.
    FEMA has been meeting regularly with regulators discussing 
the implementation of the Biggert-Waters Flood Insurance Act of 
2012 and other topics. On October 11, the Federal Reserve and 
other regulators released a proposed rule requiring the 
acceptance of private flood insurance policies. However, it is 
important to note that FEMA does not regulate mortgage 
companies and is not responsible for enforcing mandatory 
purchase guidelines for the NFIP. FEMA does not influence the 
actions that other Federal agencies are required to implement 
in the law.

Q.2. Starting in 2008, Douglas County in Nevada raised 
questions about FEMA's revised flood study and maps used in the 
Carson Valley after discovering improper hydrology methods were 
used. Douglas County tried to work with FEMA Region 9 during 
the formal appeal period, before any final decisions were made. 
FEMA's unwillingness to form a partnership with the County 
throughout the appeal process to address the inaccuracies left 
the County with no choice but to restudy the watersheds in 
question, with their own funds. Now for over the past 3 years, 
the County has undertaken a new substantial effort to collect 
more detailed and advanced scientific analysis. Due to the 
lengthy review process many property owners may be paying flood 
insurance premiums that are not based on accurate information.
    If FEMA should find an entity like Douglas County was 
correct in their appeal--Can FEMA develop a formal protocol and 
set aside funds and provide financial reimbursement to affected 
property owners who unnecessarily paid higher rates and 
reimburse entities that individually funded restudying data?
    If so--when will FEMA implement the program to make 
reimbursements?
    How can FEMA improve and develop a more fair and unbiased 
technical appeal process where FEMA partners with communities 
toward the mutual goal of accurate floodplain mapping?

A.2. Section 100246 of the Flood Insurance Reform Act of 2012 
authorizes FEMA to reimburse appellants (as defined under 42 
U.S.C. 4104 (b) or (c)) in certain circumstances, but the law 
does not allow implementation of Section 100246 to occur until 
regulations are established. FEMA is prioritizing rulemaking 
activities in response to the Flood Insurance Reform Act of 
2012 and other Congressional direction, but FEMA cannot begin 
reimbursing under this provision until regulations are 
completed. Therefore, there are no specific procedures 
applicable to Section 100246 and reimbursements currently in 
place.
    FEMA's flood hazard mapping mission is to identify flood 
hazards, assesses flood risks, and partner with States and 
communities to provide accurate flood hazard and risk data to 
guide them to mitigation actions. FEMA strives to achieve these 
objectives via the Risk MAP program. For Risk MAP projects, an 
emphasis is placed on collaboration with local communities to 
leverage locally available data and identify the areas of 
greatest need for improved and updated floodplain mapping. 
Community and stakeholder involvement is an important component 
of the flood hazard mapping process. FEMA involves community 
officials and other stakeholders, including Federal agencies, 
in the planning stages of the mapping process and offers 
stakeholders and the public the opportunity to review and 
provide comments on mapping products. Also, in an effort to 
obtain all relevant information and ensure accurate study 
results, FEMA routinely holds public meetings for community 
officials and interested parties. The appeals process is 
available to communities who are not satisfied with the results 
of the subsequent mapping effort and who have scientific or 
technical data to support changes to the proposed map. FEMA has 
taken two critical steps in recent years to improve and enhance 
this appeal process.
    First, FEMA expanded the appeals process to include appeals 
based on new or modified flood hazard information shown on a 
Flood Insurance Rate Map (FIRM). The appealable flood hazard 
information now includes additions or modifications of any 
floodplain boundary, flood zone designation, or regulatory 
floodway. Thus, more communities and individuals now have 
access to the appeal process.
    Also, the use of a Scientific Resolution Panel (SRP) has 
been made available to communities in support of the appeal 
resolution process when conflicting scientific or technical 
data is submitted during the appeal process, and a mutual 
resolution has not been achieved. SRPs are panels composed of 
independent and unbiased panels of experts in hydrology, 
hydraulics, and other pertinent sciences established to review 
conflicting scientific and technical data and provide 
recommendations for resolution.

Q.3. Recently FEMA has been changing flood zones on U.S. Forest 
Service property or near foothill areas to Zone D. Zone D is 
used where flood hazards are ``undetermined.'' Zone D can lead 
to the worst rate for homeowners who may want to purchase flood 
insurance.
    How can FEMA improve its work with the U.S. Forest Service 
in understanding and evaluating U.S. Forest Service property 
areas around cities before Zone D is used?

A.3. Community and stakeholder involvement is an important 
component of the flood hazard mapping process. FEMA involves 
community officials and other stakeholders, including Federal 
agencies, in the planning stages of the mapping process and 
offers stakeholders and the public the opportunity to review 
and provide comments on mapping products. Also, in an effort to 
obtain all relevant information and ensure accurate study 
results, FEMA routinely holds public meetings for community 
officials and interested parties.
    The initial coordination activities for a mapping study 
include an evaluation and prioritization of the community's 
mapping needs and the available funding, to establish the level 
of study undertaken in each area and options for mapping the 
areas. After these discussions, study efforts may need to focus 
on certain high-risk or high-population locations and delay the 
analysis of areas deemed less critical. This may result in 
areas of the FIRM being designated Zone D. A Zone D designation 
is used for areas where there are possible but undetermined 
flood hazards, as no analysis of flood hazards has been 
conducted. Flood insurance is not federally required by lenders 
for structures in Zone D because it is not a Special Flood 
Hazard Area. Although these areas are often undeveloped and 
sparsely populated at the time they are designated as Zone D, 
lenders may subsequently become aware that new development has 
increased the possibility of property damage from flooding and 
may require coverage as a condition of their loans. Flood 
insurance rates for properties in Zone D are commensurate with 
the uncertainty of the flood risk.
    At any time, community officials can submit scientific or 
technical data to FEMA to support a flood zone revision. All 
requests for map revisions should be submitted through the 
Chief Executive Officer of the community, because the community 
must adopt any changes to the FIRM. To help communities compile 
the data required to support map revision requests, FEMA has 
developed a package of step-by-step instructions and forms. 
These forms and cost information for map revisions are 
available on the FEMA Web site at www.fema.gov/mt-2-
application-forms-and-instructions.
    In addition, there is a statutory 90-day appeal period 
whenever new or modified flood hazard information is shown on a 
preliminary Flood Insurance Rate Map and Flood Insurance Study 
report. When conflicting scientific or technical data is 
submitted during the appeal process, and a mutual resolution 
has not been achieved, the use of a Scientific Resolution Panel 
(SRP) has been made available to communities in support of the 
appeal resolution process. SRPs are panels composed of 
independent and unbiased panels of experts in hydrology, 
hydraulics, and other pertinent sciences established to review 
conflicting scientific and technical data and provide 
recommendations for resolution.
                                ------                                


       RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCHUMER
                      FROM W. CRAIG FUGATE

Q.1. Please provide a detailed timeline for implementing 
Sections 100205 and 100207 of the Biggert-Waters Act.

A.1. Below is a timeline of FEMA's plans for implement Sections 
100205 and 100207 of the Biggert-Waters Act.

Section 100205

January 1, 2013:

    At the time of policy renewal, Pre-FIRM rates increase 25 
percent above the rates in effect for nonprimary pre-FIRM 
subsidized residences. FEMA will continue phasing out the Pre-
FIRM subsidies for Pre-FIRM nonprimary residences by 25 percent 
every year until the property reaches full risk rates.

October 1, 2013:

    Premium Increases: Pre-FIRM rates increase (including the 
reserve fund assessment) 25 percent above the rates in effect 
when the Biggert-Waters Act was enacted for policies issued on:

    Severe Repetitive Loss (SRL) properties

    Properties that have incurred flood-related damages 
        in which the cumulative amount of NFIP claim payments 
        exceeded the fair market value of the property (as a 
        subset of SRL properties)

    Business properties

    No Extension of Subsidy to New Policies or Lapsed Policies 
for Pre-FIRM Subsidized Properties in SFHAs and Zone D (New 
Business): FEMA is prohibited from offering Pre-FIRM subsidized 
rates for certain properties. As such, NFIP will no longer 
provide any extension of Pre-FIRM subsidized rates to new or 
lapsed Pre-FIRM properties/policies, or Pre-FIRM properties 
purchased after the date BW was enacted. These properties will 
be charged the full-risk premium rate. Unless eligible for 
Post-FIRM rating grandfathering, to determine the full risk 
premium rates for these properties, the policyholder must 
submit to his agent an Elevation Certificate (EC) and photos 
showing the elevation of the lowest floor compared to the base 
flood elevation. For the first year of implementation only, 
FEMA will use tentative or provisional rates while the 
policyholder obtains an EC. New business Pre-FIRM application 
submissions will use Post-FIRM rating procedures. The following 
Pre-FIRM properties/policies are impacted:

    Properties not insured by the NFIP as of the date 
        of enactment of BW12.

    Policies under the NFIP that have lapsed in 
        coverage as a result of the deliberate choice of the 
        policyholder.

    Properties purchased after the date of enactment of 
        the Biggert-Waters Act.

June 1, 2014:

    For purposes of determining pre-FIRM subsidized nonprimary 
residences subject to 25 percent increases, the NFIP will 
revise the threshold for determining nonprimary residence from 
living in the residence less than 80 percent to 50 percent or 
less of the 365 days following the policy effective date.

January 1, 2015:

    Rulemaking for Installment Plans: FEMA currently does not 
have authority to cancel a policy if a payment is missed; this 
authority is required before FEMA can offer installment plans. 
FEMA will initiate Rulemaking to change the flood insurance 
policy to allow cancellations for nonpayment of premium under 
Section 100205(d).
    Substantial Improvement: FEMA will initiate Rulemaking to 
deny subsidized premiums to any property which, since the date 
of enactment of the Biggert-Waters Act, has experienced or 
sustained substantial improvement exceeding 30 percent of the 
fair market value of the property.

Section 100207

    FEMA plans to implement section 100207 on October 1, 2014. 
Guidance about the change will be released to stakeholders at 
least 6 months prior to October 1, 2014.

Q.2 What outreach efforts, if any, has FEMA taken to inform 
property owners and other stakeholders about the implementation 
timeframe referenced in Question 1, and the associated premium 
increases resulting from those reforms? What outreach efforts, 
if any, has FEMA taken to inform property owners and 
stakeholders about the phase-out of grandfathered rates?

A.2. FEMA has undertaken a broad strategy to educate consumers, 
stakeholders, elected and appointed officials, and the media.
    Because of the multiple audiences and multiple channels 
through which policyholders receive information, FEMA launched 
a comprehensive and aggressive strategy to educate lenders, 
realtors, insurance agents, local officials, elected officials 
and the news media. While FEMA depends on Write-Your-Own (WYO) 
insurance companies and others to communicate to policyholders 
about changes to the NFIP, FEMA is also using several BW12 
specific Web sites, partner social media sites, FEMA social 
media, and FloodSmart.gov educational tools to reach out 
directly to policyholders and the public.
    FEMA has worked closely with:

    Partners in the Insurance Industry, including 
        Write-Your-Own companies and others, ensure agents have 
        the tools needed to have important discussions. In 
        many, if not most cases, an individual's insurance 
        agent is their only link with the NFIP and it is 
        critical that agents are fully educated on the changes 
        and impacts of BW12.

      FEMA has worked through our agent training 
        programs, through our WYO partners, through industry 
        associations and directly to agents via in-person 
        conferences and distance learning to ensure our partner 
        agents have the information and tools they need to 
        properly communicate with policyholders.

      FEMA developed materials that each policyholder 
        will get in their annual insurance renewal information 
        package describing the rate changes and encouraging 
        them to talk more with their insurance agents.

      FEMA developed a new suite of materials designed 
        for agents to have the BW12 conversation when 
        appropriate with their customers and a specialized tool 
        kit with input from former agents on the tools needed 
        to talk with customers.

      Since May 2013, FEMA has trained more than 6,400 
        agents and 11,500 total insurance professionals 
        (lenders, adjusters, realtors, others) on BW12 changes. 
        FEMA is very near the goal of training 19,100 insurance 
        professionals including 8,000 agents by the end of the 
        calendar year. FEMA has also developed a new series of 
        six training videos for agents specifically on BW12 
        which will are available online.

    FEMA has held conference calls and webinar training 
        for staffs of more than 40 State insurance 
        commissioners.

    FEMA conducted more than 10 in-person briefings for 
        the National Association of Realtors at the national 
        and State levels, and plan to conduct more training 
        with them in the future.

    In May 2013, FEMA dedicated most of the educational 
        portions of the annual Flood Insurance Conference to 
        the implementation of Section 205.

    FEMA has conducted more than 50 visits to Capitol 
        Hill to educate Members of Congress and staffs on BW12.

    FEMA has worked--through the Association of State 
        Floodplain Managers--to reach out to local officials to 
        educate them on BW12.

    FEMA met with nearly 1,000 Local floodplain 
        managers at the ASFPM National Conference this year, 
        providing them tools and resources to communicate 
        changes to their communities. FEMA is also developing a 
        suite of BW12 materials specifically for use by local 
        officials.

    FEMA has met with disaster survivors in Colorado, 
        in Sandy-affected areas in the Northeast, and Isaac-
        affected areas on the Gulf Coast to ensure that as they 
        rebuild, they have the information they need to make 
        the best rebuilding decisions for them.

    FEMA has conducted scores of in-person briefings 
        and webinars through our HQ and regional offices to 
        inform the public about Section 205 changes.

Q.3. How does FEMA plan to assess the ``current risk of flood'' 
as required under Section 100207 of Biggert-Waters for 
properties where FEMA does not have risk information in the 
form of an elevation certificate? What additional measures, 
other than an elevation certificate, if any, has FEMA 
considered in using to determine risk? If none, why?

A.3. Properties that currently do not have an elevation 
certificate documenting the necessary risk information to 
determine the current risk of flood, primarily elevation of the 
structure and the Base Flood Elevation will be required to 
obtain an elevation certificate. WYO companies are required to 
give notice that an Elevation Certificate is needed a minimum 
of 45 days prior to policy expiration, and WYO companies 
typically give notice 60-90 days prior to expiration.
    FEMA is exploring other remote sensing options for 
determining the elevation of structures and Base Flood 
Elevations, but so far no methods have been tested and proven 
to sufficiently replace an Elevation Certificate completed by a 
licensed surveyor or engineer.

Q.4. What plans, if any, does FEMA have to work with localities 
to address unique housing stocks, such as those in dense urban 
areas?

A.4. Following major declared disasters FEMA puts in place 
plans to work with State and local officials on their recovery 
needs. While hurricane and flood disasters in dense urban areas 
are not new, the impacts of Hurricane Sandy on New York and New 
Jersey were large and significant to a variety of housing 
stocks from detached single family homes to high rise 
apartments, condominiums, and mixed use buildings. In support 
of its mission to create safer communities, enable individuals 
to recover more rapidly, and lessen the financial impact of 
disasters on the Nation, the Federal Insurance and Mitigation 
Administration (FIMA) implemented plans to assess the 
performance of damaged buildings, produce Recovery Advisories 
of recommended mitigation solutions to common observed damage 
trends, and roll out comprehensive training, education, and 
outreach to stakeholders of various housing stocks.
    From early on in the disaster, FEMA put up a Web site with 
available Building Science Resources http://www.fema.gov/
building-science/hurricane-sandy-building-science-activities-
resources and added new resources as they became available. 
There are Recovery Advisories and Fact Sheets on residential 
building design and construction, foundation requirements, 
mechanical, electrical and plumbing systems, designing for 
higher flood levels, reducing interruptions to mid- and high-
rise buildings and protecting building fuel systems. There are 
links to the extensive library of relevant free Building 
Science publications such as Technical Bulletins on the minimum 
building performance requirements of the National Flood 
Insurance Program (NFIP), Coastal Construction guides and fact 
sheets, Flood Retrofit and Utility Protection guides, building 
code requirements in flood hazard areas, and many other 
resources.
    FEMA also collaborated with State and local official for 
specific activities focused on stakeholders of various housing 
stocks that were impacted. Examples include the Hurricane Sandy 
Road to Recovery: A New Jersey Homeowner's Guide (March 2013) 
http://184.72.33.183/Public/Public_Documents/
New_York_Homeowner_Guide.pdf and the Housing Recovery Forums 
conducted throughout New York City where the public had access 
to mitigation and insurance specialists from FEMA and other 
Government agencies.
    For technical audiences of builders, designers, and local 
officials, FEMA delivered numerous training classes in New 
York, New Jersey, and online covering housing related topics 
such as mitigation best practices, coastal construction and 
foundation design, floodproofing, flood codes and standards, 
retrofitting flood-prone buildings, and others. Thousands of 
attendees were reached through these efforts.
    FEMA has also delivered presentations at several State 
realtor association functions, legal bar associations, civic 
groups, town hall meetings and Governor Cabinet meetings 
educating and informing citizens, elected and appointed 
officials and real estate professionals on an overall 
comprehensive mitigation strategy. This includes awareness of 
Hazard Mitigation grants for elevations, acquisitions, flood 
proofing, etc., and sound floodplain management principles that 
emphasize planning, risk assessment, and mitigation actions. 
Those plans continue with aggressive and comprehensive outreach 
campaigns to assist State Partners and the local floodplain 
mangers with technical assistance.
    FEMA continues collaboration with HUD, State and local 
elected and appointed officials with disaster grant assistance 
programs including CDBG, 404 and 406 Hazard Mitigation for 
vulnerable housing stocks.

Q.5. What alternative mitigation measures, if any, has FEMA 
considered, evaluated, or adopted for premium credits other 
than home elevation or filling-in of basements for urban areas? 
If none, why?

A.5. Under the NFIP, all new and substantially improved/damaged 
residential structures must have the lowest floor elevated to 
or above the Base Flood Elevation (BFE). Any space below the 
BFE may be used only for parking, access, and storage. We have 
consistently found in our post-disaster assessments and flood 
insurance experience, that properly elevated residential 
buildings successfully minimize flood damages. Structures built 
to NFIP floodplain management requirements experience 80 
percent less damage through reduced frequency and severity of 
losses.

        FEMA is in the process of finalizing Post-Sandy 
        Recovery Advisory No. 7 (Reducing Flood Risk and Flood 
        Insurance Premiums for Existing Residential Buildings) 
        to provide guidance for providing protection to single-
        family homes and for a row house and town house to the 
        BFE by modifying and strengthening their foundation to 
        an open foundation or with foundation walls and 
        converting the ground floor living area to an enclosure 
        used only for parking, assess, and storage. The living 
        area would be moved above the BFE. If the building 
        meets other NFIP requirements, the building can qualify 
        for reduced flood insurance rates.

    Since the NFIP's inception, all residential structures are 
required to be elevated above the BFE. Allowing people to 
sleep, recreate, or otherwise occupy the space, and place 
utilities and mechanical equipment below the BFE of a 
residential building of any type, places not only the building, 
but also lives at significant risk. From time to time, we have 
been asked to allow residential structures to be dry 
floodproofed. FEMA has not allowed residential structures to be 
dry floodproofed because of the concern for people living below 
the BFE, and because of the technically complex methods that 
dry floodproof nonresidential structures require.
    Dry Floodproofing: Dry floodproofing requires an architect 
or engineer to certify that the building design, 
specifications, and plans meet the NFIP requirements. Under the 
NFIP, a dry floodproofed nonresidential structure in A Zones 
must be designed so that below the BFE, the structure and 
associated utilities and sanitary facilities are watertight 
with walls substantially impermeable to the passage of water. 
Making the structures watertight requires sealing the walls 
with waterproof coatings, using impermeable membranes, and/or a 
supplemental layer of masonry or concrete. Dry floodproofed 
buildings must be capable of resisting hydrostatic, 
hydrodynamic, and debris impact loads. An emergency operation 
plan must be in place, and there must be an inspection and 
maintenance plan to ensure that all elements of the dry 
floodproofing measures are in good condition.
    The International Building Code and the International 
Residential Code do not allow dry floodproofed residential 
structures of any type. The American Society of Civil Engineers 
national consensus standard for Flood Resistant Design and 
Construction (SEI/ASCE 24-5) does not allow dry floodproofing 
for residential structures, and for nonresidential structures 
it is only permitted outside of ``high risk'' flood hazard 
areas that are subject to high velocity flows and wave action. 
State adopted building codes are also consistent with the 
International Codes with respect to elevation of residential 
buildings. In addition, the elevation requirements for 
residential buildings of any type are consistent with the 
mandates of Executive Order 11988--Floodplain Management that 
Federal agencies must follow for actions in the floodplain.

    Dry Floodproofing Mixed Use Buildings: In A zones, 
        professionally designed buildings that have both 
        commercial (nonresidential) and residential uses may be 
        designed with floodproofing measures. However, all 
        residential-use areas of the building must be above the 
        BFE and the nonresidential portion of the building 
        below the BFE must be floodproofed. While the NFIP 
        regulations state that dry floodproofing of below-grade 
        parking garages is allowed only for nonresidential 
        buildings, FEMA generally applies the mixed use 
        guidance to situations where the parking garage is 
        below grade on all four sides with the next higher 
        floor dedicated to nonresidential uses.

    Insuring Dry Floodproofed Buildings: The minimum 
        requirement for floodproofing a nonresidential 
        structure is to the BFE; however, when a floodproofed 
        nonresidential structure is rated for flood insurance, 
        one foot is subtracted from the floodproof elevation. 
        Therefore, the floodproofed nonresidential structure 
        has to be floodproofed to one foot above the BFE to 
        receive the same favorable insurances rates as a 
        nonresidential building elevated to the BFE.

Options for Protecting Existing Residential Structures That Are Not 
        Substantially Improved or Have Been Substantially Damaged

    There are a variety of simple low-cost measures that can be 
implemented to minimize the effects of flooding. Although these 
measures are designed to reduce flood damages, they may not 
eliminate flooding altogether, and would not result in reduced 
flood insurance premiums. Examples of mitigation measures 
include:

    Relocate contents to a safer location, preferably 
        above the BFE.

    Protect mechanical and utility equipment. Elevate 
        as much of the utilities and mechanical equipment as 
        possible to protect them from flood damage.

    Remove modern finished materials from basements or 
        other areas below the BFE. Replace the finished 
        materials with flood resistant materials.

    Install ``mini'' floodwalls to protect openings, 
        such as window wells.

FEMA Grant Programs

    FEMA Flood Mitigation Assistance (FMA) grants and Hazard 
Mitigation Grant Program (HMGP) funds may be available to 
acquire high risk structures as an alternative to elevation or 
other mitigation actions. These grant programs may also be 
available for mitigation activities for existing buildings that 
were not substantially damaged or not being substantially 
improved.

Q.6. What outreach efforts, if any, has FEMA taken to educate 
property owners in floodplains about the need for flood 
insurance?
    What outreach efforts, if any, has FEMA undertaken to 
inform property owners in floodplains about new flood map 
development and the effects of such new maps on insurance 
rates? What plans, if any, does FEMA have to work with 
localities, like New York City, in evaluating new flood maps 
and educating property owners about rate increases?

A.6. In response to your questions concerning FEMA's outreach 
efforts in response to the implementation of the Biggert-Waters 
Flood Insurance Reform Act of 2012, we offer the following 
information and examples of how FEMA has educated local 
officials and property owners in areas experiencing flood map 
revisions, as well as the effects of flood hazard changes on 
insurance costs. We also outline steps FEMA has taken, and will 
continue to take, to work with local officials to inform 
communities about the effects of flood map updates.

Promotion of Flood Insurance on a National Basis

    Alerting homeowners of the need for flood insurance 
        is a multi-pronged effort accomplished through a number 
        of channels and touch points with property owners. FEMA 
        actively engages with property owners and insurance 
        agents through its Floodsmart (floodsmart.gov) public 
        awareness campaign. Through television spots, billboard 
        advertisements, an active Internet presence, direct 
        mail, and numerous other channels, FEMA encourages ALL 
        property owners to consider protecting themselves 
        against the financially devastating effects of flooding 
        by purchasing a National Flood Insurance Program (NFIP) 
        policy. Floodsmart's integrated marketing campaign 
        includes:

      Web site: On FloodSmart.gov, the public can 
        access information about the NFIP and flood insurance, 
        types of flood risk, preparation and recovery, and 
        mapping activities. Various interactive tools also 
        connect users to local insurance agents to learn more 
        about the user's unique situation and to obtain a flood 
        insurance quote.

      Direct Mail: FloodSmart sends more than 10 
        million direct mail pieces per year to homeowners, 
        renters, and business owners across the Nation to 
        increase public awareness of flood risk and the 
        availability of flood insurance. The audiences include 
        consumers without policies, consumers with policies 
        that are about to expire, consumers who did not renew 
        their policies, and small business owners.

      Direct Response Television, Print, and Radio Ads: 
        FloodSmart uses these mediums to inform consumers about 
        the risks of flooding and to encourage them to learn 
        more about their flood risk.

      Online Digital Banners: FloodSmart creates 
        digital banners that engage consumers and direct them 
        to interact with additional tools and information on 
        FloodSmart.gov.

      Industry Outreach: FloodSmart engages insurance 
        agents, insurance companies, and insurance trade 
        associations and provides informational and marketing 
        materials to help them explain flood risk and flood 
        insurance requirements to all residents.

      Stakeholder Outreach: FloodSmart engages with 
        various stakeholder groups to share materials that will 
        help them educate their communities about flood risk 
        and flood insurance.

    Local officials in NFIP participating communities 
        are often a primary source of information to residents 
        about flood risk, flood insurance, and flood map 
        changes. Nearly 22,000 communities have joined the 
        NFIP. Each one has made a commitment to maintain Flood 
        Insurance Rate Maps (FIRMs) developed by FEMA for 
        public inspection. These flood maps form the basis of 
        locally adopted floodplain management ordinances and 
        are a catalyst to promote flood insurance. The map is 
        adopted by the community, and the community has a 
        responsibility to alert residents of proposed and 
        adopted changes. When a new map is prepared or an 
        existing map is revised, FEMA, with the assistance of 
        the local community, conducts a series of meetings to 
        share that information with the public. The new map's 
        effect on flood insurance is among the primary topics 
        discussed during these meetings.

    Some communities have chosen to join the NFIP Community 
Rating System (CRS) and can receive flood insurance premium 
discount credits for promoting flood insurance. 1,273 
communities have joined the CRS and implement floodplain 
management programs that exceed the Federal NFIP minimum 
standards. As a CRS participant, these communities commit to 
implementing specific practices which the NFIP recognizes by 
giving credit points. Ninety percent, or 1,143 CRS communities, 
receive specific credit for public outreach activities that 
include reference to the importance of flood insurance.
    By offering CRS credit, the NFIP has created an incentive 
for communities to promote the importance of purchasing of 
flood insurance. New York City does not currently participate 
in the CRS, but since Hurricane Sandy, is actively researching 
the possibility of joining.

    FEMA has worked closely with partners in the 
        Insurance Industry, including Write-Your-Own companies 
        and others, to ensure agents have the tools needed to 
        have important discussion with property owners. In 
        many, if not most cases, an individual's insurance 
        agent is their only link with the NFIP and it is 
        critical that agents are fully educated on the changes 
        and impacts of BW12.

      FEMA has worked through our agent training 
        programs, through our WYO partners, through industry 
        associations and directly to agents via in-person 
        conferences and distance learning to ensure our partner 
        agents have the information and tools they need to 
        properly communicate with policyholders.

      FEMA developed materials that each policyholder 
        will get in their annual insurance renewal information 
        package describing the rate changes and encouraging 
        them to talk more with their insurance agents.

      FEMA developed a new suite of materials designed 
        for agents to have the BW12 conversation when 
        appropriate with their customers and a specialized tool 
        kit with input from former agents on the tools needed 
        to talk with customers.

      Since May 2013, FEMA has trained more than 6,400 
        agents and 11,500 total insurance professionals 
        (lenders, adjusters, realtors, others) on BW12 changes. 
        FEMA is very near the goal of training 19,100 insurance 
        professionals including 8,000 agents by the end of the 
        calendar year.

      FEMA has also developed a new series of six 
        training videos for agents specifically on BW12 which 
        will are available online.

    Realtors and lenders are another key source of 
        floodplain information for a property owner. The Flood 
        Disaster Protection Act of 1973 and the National Flood 
        Insurance Reform Act of 1994 made the purchase of flood 
        insurance mandatory for federally backed mortgages on 
        buildings located in Special Flood Hazard Areas 
        (SFHAs). It also affects all forms of Federal or 
        federally related financial assistance for buildings 
        located in SFHAs. Following Hurricane Sandy, FEMA 
        representatives met with and presented information on 
        the updated flood hazards in New York and New Jersey to 
        area realtors.

    The flood insurance requirement applies to secured 
        mortgage loans from key financial institutions. These 
        include organizations such as commercial lenders, 
        savings and loan associations, savings banks, and 
        credit unions that are regulated, supervised, or 
        insured by Federal agencies such as the Federal Deposit 
        Insurance Corporation and the Office of Thrift 
        Supervision. It also applies to all mortgage loans 
        purchased by Fannie Mae or Freddie Mac in the secondary 
        mortgage market. Federal financial assistance programs 
        affected by the laws include loans and grants from 
        agencies such as the Department of Veterans Affairs, 
        Farmers Home Administration, Federal Housing 
        Administration, and the Small Business Administration, 
        as well as FEMA, in the case of some disaster 
        assistance programs. Therefore, communicating the 
        mandatory purchase requirement to property owners is 
        the obligation of a number of agencies and businesses.

    FEMA offers additional vehicles for communicating 
        about flood insurance. FEMA's Citizen Corps program 
        promotes a holistic approach to preparedness, and 
        recommends that individuals who live in areas of flood 
        risk contact an insurance agent to learn more about 
        flood insurance. The Government Delivery broadcast 
        email subscriber service reaches more than 1,000,000 
        subscribers with information on flood insurance.

Promotion of Flood Insurance on a Regional Basis

    Examples of FEMA's latest outreach efforts can be 
        seen in those communities most affected by Hurricane 
        Sandy in New York and New Jersey. In the storm's 
        aftermath, FEMA immediately began creating advisory 
        mapping products to assist communities in the 
        rebuilding process, and to ensure that new and repaired 
        structures would be significantly stronger in the face 
        of future storms. FEMA explained to officials and 
        residents of the affected communities that building or 
        repairing structures to be stronger and above flood 
        levels will help minimize flood insurance costs. The 
        advisory products, most recently the preliminary work 
        maps, will be incorporated into new FIRMs for the 
        communities. FEMA also attended numerous Housing 
        Recovery Forums around New York City to provide 
        residents with recovery information and give 
        participants an opportunity for one-on-one discussions 
        with experts on rebuilding and flood insurance.

    FEMA presented the new flood hazard information 
        through community meetings, Webex trainings, and the 
        region2coastal.com Web site. Along with explaining the 
        science behind the advisory products, the 
        region2coastal.com Web site also provides a searchable 
        mapping tool that allows property owners to determine 
        how the revised maps will affect their property's flood 
        hazard designation once the maps are finalized. The 
        region2coastal Web site provides multiple ways for 
        residents to ask additional questions. FEMA also 
        established a flood insurance hotline for residents to 
        call and speak directly with flood insurance experts 
        about any questions or concerns they may have. Through 
        each of these tools, FEMA shares information and 
        recommendations on how to reduce flood insurance rates 
        by incorporating safer building standards into new and 
        repaired buildings.

    As communities proceed from preliminary FIRM to 
        final FIRM, FEMA will first host meetings with 
        community officials to review the preliminary FIRMs, 
        and then coordinate with community officials to conduct 
        separate public open house meetings. During these open 
        house meetings, the general public and other interested 
        parties may view the preliminary FIRMs and ask 
        questions about the effects the flood maps will have on 
        flood insurance rates, the flood hazard mapping 
        process, and opportunities to mitigate flood risk.

FEMA's Outreach Efforts With New York City

    New York City, as a participant in FEMA's Cooperating 
Technical Partner program, is pursuing a public information 
campaign on flood risk and flood insurance, and a consumer 
education program to assist residents with flood preparation/
planning, mitigation, and insurance.
    New York City and FEMA Region II representatives are 
working together to:

    improve targeted outreach strategies to those 
        communities most affected by the new maps; and

    inform public decision makers of the importance of 
        the maps for planning, emergency management, guiding 
        development toward safer areas, ensuring compliance 
        with building codes and floodplain management 
        requirements, and helping residents and businesses make 
        sound development decisions.

Q.7. What is the status of FEMA's mandated study on evaluating 
negatively elevated buildings?

A.7. FEMA has awarded two studies to the National Academy of 
Sciences to evaluate negatively elevated buildings.
    The first is the affordability study mandated by the 
Biggert-Waters Flood Insurance Act of 2012 under section 
100236. This study is being conducted in two phases. The first 
phase is to scope the study and determine the appropriate 
methodology given the lack of risk information referenced in 
your question 997198. This first phase has been awarded with a 
period of performance ending March 31, 2015.
    The second study is a voluntary study by FEMA to determine 
what improvements can be made to the rating criteria and 
methods used for negatively elevated buildings. This study has 
also been awarded and has a period of performance ending 
February 28, 2015.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR TESTER
                      FROM W. CRAIG FUGATE

Q.1. There's been some concern at the State level over whether 
Montana will be able to compete with some of the larger States 
for mitigation grants, which is going to affect people making 
adjustments to their structures. How can we ensure that 
Montanans and other folks from less populated States are given 
their fair shake in this process?

A.1. Prior to the passage of the Biggert-Waters Flood Insurance 
Reform Act of 2012 (BW12), the Flood Mitigation Assistance 
(FMA) program allocated funds to each State or Territory based 
on the total number of National Flood Insurance Program (NFIP) 
insurance policies and the total number of repetitive loss 
properties within the State or Territory. With the exception of 
a $100,000 allocation per State or Territory for the Planning 
portion of a Hazard Mitigation Plan, BW12 removed this 
allocation process. Therefore, each State and Territory, 
regardless of size or population, has the ability to apply for 
a grant during an open Hazard Mitigation Assistance application 
cycle.
    The FMA program will continue to fund discretionary 
mitigation activities in States and local communities. BW12 
eliminates the Severe Repetitive Loss (SRL) and Repetitive 
Flood Claims (RFC) programs and adds funding for the mitigation 
of SRL properties to FMA. FEMA prioritizes FMA applications 
based on the percentage of SRL structures that are mitigated by 
the proposed project. Properties included in a FMA projects 
must be NFIP-insured at the time of the application submittal. 
Flood insurance must be maintained through completion of the 
mitigation activity and for the life of the structure.
    States may also submit projects under the disaster Hazard 
Mitigation Grant Program that address flood risk or other all 
hazard risks.
                                ------                                


        RESPONSES TO WRITTEN QUESTIONS OF SENATOR TESTER
                     FROM ALICIA P. CACKLEY

Q.1. I know you've done a lot of work analyzing this 
legislation and figuring out where there are still issues, as 
outlined in your testimony. FEMA has publicly shared its 
specific rating guidelines on how it calculates risk. In your 
testimony, you cited an October 2008 study conducted by GAO 
that concluded that FEMA's rate-setting process excluded 
ongoing and planned development, climate change, and long-term 
erosion trends. Do you think FEMA has actively worked to 
incorporate these changing conditions into its rate formulas, 
as mandated under Biggert-Waters? How can they stay on top of 
these highly unpredictable factors?

A.1. As of June 2013 the Federal Emergency Management Agency 
(FEMA) was making changes to its rate-setting process as a 
result of the Biggert-Waters Flood Insurance Reform Act of 2012 
(Biggert-Waters Act). Among other things, the act requires FEMA 
to set premium rates that fully reflect the risk of losses from 
flooding and to include many of the elements we recommended in 
our October 2008 report (GAO-09-12). More specifically, we 
recommended that FEMA take steps to ensure that its rate-
setting methods and data would result in full-risk premiums 
rates that accurately reflect the risk of losses from flooding. 
We noted that these steps should include verifying the accuracy 
of flood probabilities, damage estimates, and flood maps; 
ensuring that the effects of long-term planned and ongoing 
development and climate change were reflected in the flood 
probabilities used; and reevaluating the practice of 
aggregating risks across zones.
    According to FEMA officials, the agency revised damage 
calculations for flooding events that only reach the foundation 
of a structure, reassessed and decided to continue the practice 
of nationwide average premiums, and performed a study to assess 
the long-term impacts of climate change. FEMA's ongoing efforts 
include analyzing water-depth probability curves for the 
various zones, analyzing the extent of zone grandfathering, and 
piloting studies to determine structure elevation and flood 
depths for various periods.
    We have not conducted the work necessary to answer how or 
if FEMA plans to periodically reassess ongoing and planned 
development, climate change, and long-term erosion trends.

Q.2. Flood insurance has populated the GAO's High Risk List now 
for 7 years. Based on your research, do you think the reforms 
in Biggert-Waters will be enough to get the NFIP off that list? 
As currently drafted, how many years do you think that would 
take?

A.2. We placed the National Flood Insurance Program (NFIP) on 
our High-Risk list in 2006 due to the program's financial 
instability and FEMA's operating and management challenges. 
FEMA has begun implementing some of the changes included in the 
Biggert-Waters Act, such as the creation of a reserve fund for 
catastrophic losses and elimination of subsidies for some 
properties. These are important first steps for addressing 
NFIP's financial challenges. FEMA also has begun to address 
some of the management challenges we identified, such as 
strategic planning.
    However, we do not yet know the extent to which the changes 
FEMA has been making in response to Biggert-Waters will improve 
the long-term financial stability of NFIP. As you know, many of 
the premium rate increases resulting from the act are set to be 
phased in over several years. We understand the financial 
challenges property owners can face, and note that delaying 
rate increases will add to the time it takes to reduce the 
financial exposure NFIP presents to the Federal Government.
    In order for NFIP to be removed from the High-Risk List, it 
will be important to place the program on a sound footing, both 
financially and operationally. For example, FEMA will need to 
fully establish the reserve fund and implement the premium rate 
changes begun in response to Biggert-Waters and continue to 
address management challenges, such as updating NFIP policy and 
claims information systems and improving oversight of 
contractors.
    Finally, we cannot estimate how long it will take FEMA to 
address the management and operational challenges that we have 
identified that also contribute to NFIP remaining on the high-
risk list. However, we are in periodic contact with FEMA about 
the status of open GAO recommendations.
              Additional Material Supplied for the Record


STATEMENT OF THE INDEPENDENT COMMUNITY BANKERS OF AMERICA, SUBMITTED BY 
                            SENATOR MERKLEY


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


 STATEMENT OF REPRESENTATIVE C.W. BILL YOUNG OF FLORIDA, SUBMITTED BY 
                             SENATOR HELLER


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



 NATIONAL FLOOD INSURANCE FUND OPERATING RESULTS SUMMARY SUBMITTED BY 
                            SENATOR LANDRIEU


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



      STATEMENT SUBMITTED BY THE NATIONAL ASSOCIATION OF REALTORS


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    STATEMENT SUBMITTED BY THE NATIONAL ASSOCIATION OF HOME BUILDERS


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


LETTER SUBMITTED BY BRAD THALER, VICE PRESIDENT OF LEGISLATIVE AFFAIRS, 
             NATIONAL ASSOCIATION OF FEDERAL CREDIT UNIONS


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



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