[Senate Hearing 118-425]
[From the U.S. Government Publishing Office]
S. Hrg. 118-425
REAUTHORIZATION OF THE NATIONAL FLOOD
INSURANCE PROGRAM: IMPROVING COMMU-
NITY RESILIENCE
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HEARING
BEFORE THE
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
ON
EXAMINING THE REAUTHORIZATION OF THE NATIONAL FLOOD
INSURANCE PROGRAM
__________
MAY 2, 2023
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
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Available at: https: //www.govinfo.gov /
__________
U.S. GOVERNMENT PUBLISHING OFFICE
56-952 PDF WASHINGTON : 2025
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
SHERROD BROWN, Ohio, Chair
JACK REED, Rhode Island TIM SCOTT, South Carolina
ROBERT MENENDEZ, New Jersey MIKE CRAPO, Idaho
JON TESTER, Montana MIKE ROUNDS, South Dakota
MARK R. WARNER, Virginia THOM TILLIS, North Carolina
ELIZABETH WARREN, Massachusetts JOHN KENNEDY, Louisiana
CHRIS VAN HOLLEN, Maryland BILL HAGERTY, Tennessee
CATHERINE CORTEZ MASTO, Nevada CYNTHIA M. LUMMIS, Wyoming
TINA SMITH, Minnesota J.D. VANCE, Ohio
KYRSTEN SINEMA, Arizona KATIE BOYD BRITT, Alabama
RAPHAEL G. WARNOCK, Georgia KEVIN CRAMER, North Dakota
JOHN FETTERMAN, Pennsylvania STEVE DAINES, Montana
Laura Swanson, Staff Director
Lila Nieves-Lee, Republican Staff Director
Elisha Tuku, Chief Counsel
Amber Beck, Republican Chief Counsel
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Pat Lally, Assistant Clerk
(ii)
C O N T E N T S
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TUESDAY, MAY 2, 2023
Page
Opening statement of Chair Brown................................. 1
Prepared statement....................................... 27
Opening statements, comments, or prepared statements of:
Senator Scott................................................ 3
Prepared statement....................................... 28
WITNESSES
Carolyn Kousky, Associate Vice President for Economics and
Policy, Environmental Defense Fund............................. 5
Prepared statement........................................... 29
Responses to written questions of:
Chair Brown.............................................. 43
Senator Warnock.......................................... 43
Roy E. Wright, President and CEO, Insurance Institute for
Business and Home Safety....................................... 7
Prepared statement........................................... 36
Patty Hernandez, Executive Director, Headwaters Economics........ 9
Prepared statement........................................... 40
Responses to written questions of:
Chair Brown.............................................. 44
Senator Warnock.......................................... 45
Additional Material Supplied for the Record
Statement submitted by ICBA...................................... 47
Letter submitted by CUNA......................................... 49
Letter submitted by NMHC and NAA................................. 51
(iii)
REAUTHORIZATION OF THE NATIONAL FLOOD INSURANCE PROGRAM: IMPROVING
COMMUNITY RESILIENCE
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TUESDAY, MAY 2, 2023
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10 a.m., in room 538, Dirksen Senate
Office Building, Hon. Sherrod Brown, Chair of the Committee,
presiding.
OPENING STATEMENT OF CHAIR SHERROD BROWN
Chair Brown. The Banking, Housing, and Urban Affairs
Committee will come to order. Dr. Carolyn Kousky will join us
virtually from, I believe, Philadelphia, perhaps, and Mr.
Wright and Ms. Hernandez are here in person today.
This hearing is a continuation of our efforts to enact a
long-term reauthorization of the National Flood Insurance
Program. The program has been extended 25 times since 2017. The
latest extension will expire on September 30th of this year.
We have heard from multiple groups representing the broad
scope of stakeholders: realtors, public works officials, the
business community, floodplain managers, mortgage lenders, FEMA
officials across two Presidential administrations. They all
delivered the same basic message: a long-term reauthorization
is essential because flooding is the most common and most
costly natural disaster facing families, businesses, and
communities.
Multiple factors are involved. Outdated flood maps,
population growth in at-risk areas, land use patterns, and
over-stretched infrastructure in many areas all play a role.
And climate change is only making it worse. It is causing more
frequent, extreme weather events, and it is making rainfall and
snowfall less predictable.
In recent weeks we have witnessed the highest river
flooding in over 20 years in parts of the Upper Mississippi
Valley. In California, unusually wet weather has resurrected a
lake that has been dry since the 1980s, inundating productive
cropland and threatening downstream communities. An extreme
rainstorm overwhelmed Fort Lauderdale with over 2 feet of
rainfall.
According to NOAA, nearly half of the United States is at
risk of flooding this spring. All of this, and hurricane season
has not even started yet.
Flooding is devastating to families, homes, businesses, and
communities. And it is only getting worse.
These disasters also often fall hardest on low-income
families and communities that have fewer resources to prepare
for and to respond to them. We will hear from one of our
witnesses about the particular challenges faced by rural
communities.
We need to help our families and communities to adapt and
become more resilient both to the flooding we face now, and to
the increases we know are coming in the next several decades.
And whenever possible, we want to help communities avoid
extreme flooding altogether, through predisaster flood
mitigation.
The NFIP is critical to that effort. It provides nearly
$1.3 trillion in coverage to over 4.7 million homes and
businesses in over 22,000 communities.
There are a number of things that separate the NFIP from
the private insurance industry. Unlike a private insurance
company, the NFIP does not just provide insurance. Its job is
to prevent and minimize flood damage in the first place, not
just help with recovery.
The NFIP combats the overall threat of flooding through
four related components: flood insurance, floodplain
management, floodplain mapping, and mitigation.
The Bipartisan Infrastructure Bill provided a downpayment
on new opportunities for communities to help homeowners, by
providing additional funding for grants to mitigate homes prior
to disaster, or to expedite post-disaster buyouts for those who
chose to move out of harm's way.
We need to build on that investment.
Because of continued denial of the breadth and scope of the
climate crisis by some Members of Congress--unbelievably, a
significant number in this Congress continue to deny the
science of climate change when the cities in their States are
at sea level or below and their forests are on fire--we know
flooding will get worse and require even more resources and
more aggressive action to prevent.
We must reauthorize and strengthen the NFIP, and invest in
flood mitigation and floodplain management before disasters
happen in communities.
Last Congress, we heard from stakeholders, including
practitioners working with communities and families. We learned
about barriers to underserved communities and families
participating in flood mitigation programs; we learned about
the benefits of expanding the Community Rating System to help
communities reduce local flood risk; we learned about the
importance of helping communities and property owners to
understand their risk, both through improving mapping and other
risk communications, and through disclosure of flood hazards to
prospective owners and tenants; and we learned the importance
of building State and local capacity to carry out our
floodplain management and mitigation programs, especially for
small and rural communities, places like in Montana.
We also heard FEMA's recommendations for strengthening the
program, including forgiving the overhang of debt from previous
disasters and providing means-tested assistance to help more
families afford insurance.
I am interested in hearing our witnesses' recommendations
for ways we can help strengthen the NFIP so that it can serve
all communities, including rural, underserved, and Tribal
communities, and how flood resilience is part of a holistic
community policy.
It is no secret that NFIP reauthorization has proven to be
a challenge. It is a complex program, with multiple goals, with
implications for many of the things people care about most--
their homes and their communities.
However, I believe it is possible for us to come together
to reauthorize and to improve this program.
I look forward to working with Ranking Member Scott and the
Members of this Committee to strengthen the NFIP and the
country's comprehensive approach to mitigating flood risk
through a long-term reauthorization bill this Congress.
Senator Scott.
OPENING STATEMENT OF SENATOR TIM SCOTT
Senator Scott. Thank you, Mr. Chairman, and thank you all
for joining us. I appreciate both the witnesses and the one
here with us virtually talking about such an important
conversation. I will certainly say as a lifelong South
Carolinian, I understand the real loss and impact that flooding
has on our communities, because I have lived through them.
In 2016, after Hurricane Matthew, I remember the
devastation in the small town called Nichols, South Carolina,
where the devastation of the storm was hard to watch. Even days
after the storm was gone, the water was still above my knees as
we looked for ways to help rebuild that community. Just 2 years
later, Hurricane Florence came through the same town, washing
away lives, homes, and businesses. Eight people were lost that
year in South Carolina due to the storm.
When I think about these experiences, the one word that
does come to mind is the word ``resiliency.'' It is really
important that our communities are resilient. And I will say
without any question, the people of Nichols, South Carolina,
and so many of the other hard-hit areas have proven to be
resilient people. If the homes and the infrastructure built in
these communities had the structural resilience to match the
spiritual resilience of these residents, we would not see the
same kind of devastation that we do in the wake of major storms
like Matthew and Florence.
Before coming to Washington, I spent a few years in the
insurance business, about 23 of those years in the insurance
business and more than half of that time with selling flood
insurance. And I will say my experience goes back to Hurricane
Hugo that devastated the Charleston area in a way that very few
things ever has. And when you understand and appreciate the
necessity of programs that work, you certainly do have an
affinity and appreciation for the National Flood Insurance
Program and its mission of helping out in some of the most
challenging situations that we see. You couple that with FEMA,
you understand as a community starts to rebuild the importance
of having a Federal program that works.
My concern is that when you look at the National Flood
Insurance Program, the one thing we have to say is that it has
not worked the way that it was intended to. If you look at the
fact that in June 2017, we canceled $16 billion of its debt,
and yet NFIP still owes more than $20 billion to the taxpayers.
That, to me, is a problem. And I think we cannot just look
through the prism of ``hopefully the Federal Government shows
up when there is a need.''
At the same time, we have to make sure that the Federal
Government, the programs within the Government are as efficient
and as effective as humanly possible to meet the broader needs
of the people.
One of the challenges I have often said is--I am trying to
do some basic math here on the back of a piece of paper here,
Mr. Chairman, as I was so eloquently speaking--three States--
Louisiana, South Carolina, and Florida--represent a
disproportionate share of the premiums that flow into the
National Flood Insurance Program. But when you look at the
flood occurrences and incidents around the country, what you
will come to conclude is that flooding is impacting communities
in Ohio, devastating communities in Iowa, and yet 40 percent of
the premium that funds the program comes from three specific
States. That means that the formula that we are using to
calculate who should be paying into the system is insufficient
and certainly leaves the program underfunded.
We have to reexamine the theory of, in my perspective, Mr.
Chairman, not just flood insurance, but catastrophic
occurrences that are happening more and more across the
country, for us to understand and appreciate the necessity of
what we are talking about. You cannot do it in a silo of just
flood insurance. We have to have a broader conversation about
catastrophic occurrences because taxpayers are subsidizing wind
activities, tornadoes, and other challenges, as well as flood
activity. So when you see it from a panoramic view, you come to
a very different understanding and appreciation for the weight
of catastrophic occurrences on the American people.
Planning for that is something that we have just done
poorly because we continue to see flood insurance and flood
challenges, a National Flood Insurance Program as a coastal
program, and the rest of the interior may not have to worry
about it. But the truth of it is that we are seeing so many
incredibly expensive incidents in the interior of our country,
and not simply on our coasts.
And that reinforces the importance of us having this
conversation today and thinking about not only where they
happen, but where the most vulnerable communities are least
prepared to respond to the challenges.
One of the areas where I think we could spend more time in
disaster management is the area of prevention. That is why I am
reintroducing my bipartisan legislation, the Repeatedly Flooded
Communities Preparation Act. This legislation seeks to provide
more resources to those areas of our Nation that face
consistent and continuous flooding. Breaking the costly cycle
of repeated flooding and rebuilding is an ounce of prevention,
and it certainly is worth a pound of cure.
Too often, both our conversations about flooding and the
Federal spending meant to address it is focused on large cities
on the coasts where the costs and disasters are high. But we
cannot forget about the small towns and the rural communities
far upriver, who oftentimes have even higher risks, as I just
described a few minutes ago.
Most of you are aware of my work on Opportunity Zones,
where economic development incentives are targeted to
communities who need it most. Recent changes to better target
Federal mitigation efforts to underserved communities will have
similar positive impacts.
Without an actuarially sound insurance program--and that is
the challenge of premium insufficiency, is it is not
actuarially sound because we have not understood the risk as it
is, as opposed to the way that we think it should be--this
program will never be financially solid. Without better
mitigation and mapping, costs for the insurance side of the
program will continue to grow.
That is why a comprehensive reform to the NFIP is
essential, and doing so is the only way to ensure that flood
insurance can remain affordable, accessible and most
importantly, helpful to policyholders when they need it the
most.
Let me just finish on that one thought there. We look at
the FEMA disaster recovery. I think the maximum amount is
around $39,000 that people are able to be eligible for, whether
you have flood insurance or not. We have to figure out how to
make sure that Americans who need the coverage have the
coverage, which I believe will reduce the burden that we are
putting on the NFIP. We have to understand the risk as it is,
and once again, not as we wish it was.
Thank you.
Chair Brown. Thank you, Senator Scott.
We are joined by stakeholders to share their ideas about
ways to improve NFIP and better protect our communities. Dr.
Carolyn Kousky serves as Associate Vice President for Economics
and Policy at the Environmental Defense Fund. Before joining
EDF, Dr. Kousky was Director of the Wharton Risk Management
Decision Processing Center at the University of Pennsylvania.
Mr. Roy Wright leads the Insurance Institute for Business
and Home Safety. Prior to joining, he served as Chief Executive
of the National Flood Insurance Program and testified before
this Committee. Welcome in person, Mr. Wright.
Ms. Patricia Hernandez serves as Executive Director for
Headwaters Economics, located on Bozeman, Montana. She has
practical experience working with rural and under-capacity
communities and Tribes on flood mitigation grant projects, as
well as research experience. Welcome Ms. Hernandez, in person.
We will begin with Dr. Kousky, remote from Philadelphia.
Dr. Kousky.
STATEMENT OF CAROLYN KOUSKY, ASSOCIATE VICE PRESIDENT FOR
ECONOMICS AND POLICY, ENVIRONMENTAL
DEFENSE FUND
Ms. Kousky. Good morning. I would like to thank Chairman
Brown, Ranking Member Scott, and the esteemed Members of the
Committee for the invitation to speak to you today, and I would
also like to thank this Committee for their attention to this
topic.
I am the Associate Vice President for Economics and Policy
at the Environmental Defense Fund and have been researching the
NFIP for over 15 years, and that prior work informs my
testimony today.
I would like to start by stressing the important role that
insurance plays in recovery from disasters. Severe floods
impose enormous and variable costs on households, ranging from
property damage to evacuation and temporary living expenses to
cleaning up debris or buying fuel and generators. The list goes
on and on. Most households have insufficient liquid savings to
cover these expenses outright.
Disaster loans are often a first line of defense, but for
lower-income households additional debt could make their
financial situation more precarious, and limited repayment
ability often means they are locked out of access to credit
altogether. And we know that Federal disaster aid is too
limited or too delayed or too difficult to navigate. So with
limited other options, insurance is essential for financial
resilience.
In ongoing research, for example, a colleague and I find
that after hurricanes, households with insurance are less
likely to report high financial burden and less likely to have
unmet funding needs. We also find that widespread uptake of
flood insurance improves local economic recovery by increasing
visitations to local commercial establishments. This echoes
other research findings that insurance improves recovery and
the lack of flood insurance can actually widen inequality post-
disaster.
For over 50 years, the NFIP has been providing this
necessary coverage for millions of households, but, as you
know, we still see far too many households at risk and not
participating in this important financial protection. That is
driven by many factors like lack of sufficient public
information on flood risk and the cost of flood damages, as
well as our own individual optimism that when the sun is
shining, disasters will not happen to us.
Another key driver is that far too often those who need
insurance the most are simply unable to afford it, but without
the resources to recover and obtain safe housing again,
households might have to cover the recovery expenses in ways
that can have negative impacts for their households or limit
their ability to build wealth, like having to defer medical
expenses or fall behind on bills, or drain retirement savings,
and that is why equitable access to affordable insurance is so
important.
There is now increasing concern about affordability as
prices rise to more closely align with risk at a property
level. Risk Rating 2.0 made really important reforms to the way
the NFIP prices policies, but it did not come with a means-
tested affordability program, which would require congressional
action.
Many researchers and agencies, including FEMA and the
National Academy of Sciences, have long advocated for this
approach. It should be supported through taxpayer dollars, be
scaled so that the amount of support phases out as income
increases, and be available to anyone, current or future
policyholder, in or out of the FFHA.
But I want to stress that the best way to address higher
insurance prices is to lower the underlying risk. When risks
are lower, insurance and disaster costs are less expensive.
Prior investments in risk reduction by FEMA and the NFIP have
paid dividends around the country, and right now, as mentioned,
there is more mitigation grant funding available than ever
before. But while this new funding is substantial, it is
actually still far below demand, and as the risk of climate
extremes continues to grow, so will the need.
In the face of this, the NFIP can keep doing more to
support risk reduction. A first step is providing better
information on flood risk, today's risk and risk as the climate
changes, and to households and communities. Before a community
permits development or a family decides where to live, they
should have an understanding of how the frequency of flooding
might change, of the magnitude of those floods and their
financial implications, of the full cost of insurance today,
and potential increases in the future. But right now none of
that information is easily available, creating information
failures that can lead to risky decisions and information
distortion in housing and mortgage markets.
The NFIP can also provide greater financial support for
risk reduction. This could include greater funding for post-
disaster resilient rebuilding, support for community
mitigation, including nature-based approaches, a renewed focus
on repetitive lost properties, speeding the time it takes to
secure buyouts when owners want to relocate post flood,
increasing capacity building and technical assistance to under-
resourced communities, and also supporting low-cost flood
mitigation options as well.
Finally, I want to note that insuring disasters is
difficult. Their catastrophic nature opposes challenges to the
private sector, and that is why we have so many public disaster
insurance programs, from the NFIP to the California Earthquake
Authority to State wind pools. But these public programs still
have to figure out how to cover the cost of catastrophic loss
years. The NFIP was never designed to do this, hence why it is
now $20.5 billion in debt to the U.S. Treasury. This is a debt
that all observers agree cannot be repaid by the program, and
policyholders should not be shouldering the $1 million in
interest the NFIP owes daily.
I will close by noting that with a suite of reforms and a
long-term reauthorization, the NFIP can be put on a sound path
to providing financial resilience to households and communities
as well as reducing long-term Federal disaster costs as we
grapple as a Nation with growing climate extremes.
Thank you so much for the opportunity to speak with you
today, and I look forward to your questions.
Chair Brown. Thank you, Dr. Kousky.
Mr. Wright, you are recognized for 5 minutes.
STATEMENT OF ROY E. WRIGHT, PRESIDENT AND CEO, INSURANCE
INSTITUTE FOR BUSINESS AND HOME SAFETY
Mr. Wright. Good morning, Chairman Brown, Ranking Member
Scott, and Senators of the Committee.
Community resilient seems to be the raison d'etre of the
disaster world, and it should be. A decade ago, community
resilient was an aspiration. It was more of a talking point.
With recent investments funded by Congress, the United States
has put significant dollars into mitigation programs across the
Federal Government. The question is no longer whether more
Federal funding is needed. It is how we spend those funds most
wisely.
It is mentioned when urban communities experiencing coastal
flooding make the news quite a bit, but the flooding is
national. It is regional in this kind of space. Suburban and
rural communities across the Nation experience that, yet many
lack the expertise and the resources to address the risk or
even to seek out the Federal aid. We can do better for them.
The built environment should be constructed to withstand
what we know about the natural perils, especially when we know
how to build and mitigate in ways to withstand Mother Nature's
fury.
The science on flood mitigation is more straightforward
than it is for the other perils. You build higher and stronger,
you elevate, you get out of the way of the water, you relocate,
or you redirect the water, drainage and other flood
infrastructure projects. While the engineering piece of this is
clear, the path to bring these solutions to flood-prone homes
and communities is far less clear.
Mitigating before an event is always the goal, yet too many
homes file repeat flood claims. I commend FEMA for its Swift
Current Initiative that incorporates repetitive loss home
acquisitions into the disaster recovery timeframe. Yet there is
still room to make Swift Current meet the mark as being swift.
Make it happen in real time so that the point of insurance
claim is the point of grant offer for these repetitive losses.
That said, property level mitigation will never be an
efficient means to tackle this problem. Parenthetically, I will
say property level mitigation is the right answer for wildfire
or for wind risk. A single-foot elevation or relocation project
changes the experience for a single family, yet it does not
bend down the overall risk curve. Neighborhood scale endeavors
are best. Elevate a full block of homes and the entire
neighborhood returns after the water recedes. Buy out a couple
blocks of a subdivision to leave room for the water, and the
first responders do not need to approach the area during the
flood. The water can flow.
Neighborhood scale and infrastructure flood mitigation
investments do more. You consider New Orleans, during and after
Hurricane Ida. While too many homeowners experienced
devastating and preventable losses from Ida's wind, the flood
systems worked, and homes in New Orleans were spared flood
damage.
Final note on investing in flood resilience. Using
mitigation grants to reduce risk to existing structures and
communities is inherently reactive. Grants help us address
previously made choices both where and how we build our homes
and communities, yet we need to become more proactive in our
approach to flood resilience. We cannot keep putting structures
in harm's way and then question why we have billion-dollar
flood disasters. Unless we drive down tomorrow's risks today,
we will stay trapped in a cycle of asking our children to pay
for our short-sided choices.
Flooding will always be with us, so we do need more tools
in the toolbox. The 117th Congress gave us a formidable tool in
the Community Disaster Resilience Zones Act, CDRZ. The CDRZ
approach identifies the communities that are at most risk to
disasters and at most need, and then facilitate a whole-of-
Government approach, and should Congress choose to expand CDRZ
usage, it has the potential to catalyze private and
philanthropic investment. When private capitals incentivize in
these resilience zones we will be less reliant on the
Government grant funding to be the sole basis to solve these
problems. FEMA is passionate about the possibility for CDRZ.
This passion needs to be translated into action.
Finally, a footnote on reauthorization. I have been at this
table a number of times on this topic. If the work of
reauthorization was easy, Congress would have passed a simple,
long-term reauthorization years ago. Twenty-five small
reauthorizations over 7 years--the story is the same. Congress
needs to pass a long-term reauthorization that provides the
program and customers with stability.
I look forward to your questions, Chairman.
Chair Brown. Thank you, Mr. Wright.
Ms. Hernandez, welcome. You have 5 minutes, please.
STATEMENT OF PATTY HERNANDEZ, EXECUTIVE DIRECTOR, HEADWATERS
ECONOMICS
Ms. Hernandez. Thank you, Chairman Brown, Ranking Member
Scott, and Senator Britt. I am the Executive Director of
Headwaters Economics, an independent nonprofit based in
Montana, and we work on community development primarily with
Government partners. I am here today to share how mitigation
efforts that start before disasters strike can reduce burden on
Federal disaster programs and make communities safer and more
prosperous.
So at Headwaters Economics we run free technical assistance
programs that help rural communities reduce flood and wildfire
risks, and we have worked with over 100 communities across the
country, so we have learned a lot about local needs and what
successful disaster mitigation looks like. We are seeing proof
that mitigation works. It yields cost savings for taxpayers and
protects properties and livelihood.
One of our partners is the rural town of Three Forks,
Montana, and in 2021, their floodplains were remapped, showing
that their risk of catastrophic flooding was much higher than
they had previously understood. Much of Three Forks was mapped
as floodway, which is essentially a no-build zone, and the
residents, of course, were rightfully scared of what would
happen to their property values and their insurance premiums,
and it really did seem like the future of Three Forks was in
jeopardy.
So we partnered with the city of Three Forks, their staff,
their local elected officials, State agencies in Montana, and
local engineers, and found a solution that could eliminate
nearly all of their flood risk. The project creates a grass-
lined channel that captures floodwaters and then directs them
back into the Jefferson River, preserving the land for cattle
grazing and protecting the town. And the cost of the project is
$5 million, which is much less than the expected $60 million of
damages that would happen if a flood, a single flood, were to
occur in Three Forks, but still $5 million is still far out of
reach for most rural communities.
So after one failed attempt at a FEMA BRIC grant and then
technical assistance from FEMA Region 8, the partnership
successfully secured the largest FEMA flood mitigation
assistance grant that has ever been awarded to a Montana
community.
So that project, it protects residents and businesses, it
preserves workforce housing and agriculture, and it will help
avoid future NFIP claims. It is a really exciting example of
how investments and flood mitigation can reduce insurance
burden on homeowners and taxpayers. But an important part of
that story is what did not work so well and what we can do
about it.
Communities like Three Forks have a very hard time funding
mitigation before disasters. Urban communities are more than
twice as likely to win mitigation grants than their rural or
Tribal counterparts. And this is, of course, because large
cities, like New York City, have experienced staff available to
coordinate partnerships and write grant proposals. It is also
why Headwaters Economics developed the Rural Capacity Index,
which is a national tool that measures whether communities have
the resources and the local government staff, like planners and
engineers, to secure funding. Our Rural Capacity Map shows that
there are thousands of communities across America that lack the
capacity required to access disaster mitigation funding.
So what can we do? First, let us fix the huge gap in
technical assistance, and I am talking about support to cover
activities like helping rural communities identify mitigation
solutions and compile grant proposals. Second, there is a lot
we can do to streamline funding requirements, and at the top of
the list is waiving local match requirements, which are very
difficult for rural communities with a limited tax base.
Third, we can encourage Federal agencies to prioritize
funding for low-capacity communities. These strategies will
yield large savings from avoided losses, they will alleviate
pressure on programs like NFIP, and they are going to allow
projects that protect communities from flooding to move
forward.
So thank you for your time and for elevating these issues.
Chair Brown. Thank you, Ms. Hernandez. Let me start
questioning with you. I was intrigued by the Three Forks
community, Jefferson River story that you told. What unique
challenges, if you could expand on that, do small, rural,
under-resourced communities face with floodplain management,
especially mitigation efforts? What recommendations do you
have, if you could be more specific coming out of that story,
at the local level for carrying out these initiatives?
Ms. Hernandez. Yes. So I have a great quote for you from
the mayor of one of the communities where we work, in Glendive,
Montana. She said, ``All these Federal agencies,''--this is
Mayor Olson--``all these Federal agencies agree we have severe
flood risk, but we can't afford to fix it ourselves.''
So this is what we hear very commonly from rural
communities. They need assistance with economic solutions to
address flood risk. So understanding the feasibility of
mitigation options, we can help with technical assistance,
developing revenue strategies. That is something also that
communities need help with even if they are not pursuing
grants. If they are pursuing grants, they have local match
requirements. If they are not, they need to locally fund flood
mitigation.
So, again, technical assistance is key, but beyond that, I
think we can do a lot to invest in partnerships. Our approach
at Headwaters Economics is partnerships between communities,
rural and urban partnerships, but also across levels of
Government. So when the local communities have a problem or
want to advance a project, they know who to call at their
State, at FEMA, et cetera.
Chair Brown. Thank you. Mr. Wright, David Maurstad,
Assistant Administrator at FEMA, testified last week in the
House the debt interest payments in 2023 were about $1.5
million a day, $600 million. That is not touching, of course,
the principal of $20-plus billion. You have previously
testified the debt is unlikely to be repaid. Do you agree with
FEMA that the program's debt must be forgiven?
Mr. Wright. Thank you, Chairman. I have had the opportunity
to testify on behalf of both Republican and Democratic
administrations on this topic. What I can tell you is that the
debt that exists, the principal cannot be met. I also, 5 years
removed from my time at FEMA, understand that you have got to
find a politically feasible pathway forward.
The real issue is the interest, and when I was leading the
program, $250 million a year in interest servicing, that has
gone up to about $500 million. It is going to keep going.
Inside of the next 18 to 24 months, there is likely to be a
point where the average interest rate is 5 or 6 percent. When I
was there, it was 1.5 percent. It could mean that 33 cents out
of every dollar is going to be going to this.
So I think Congress needs to find a way to address the
interest piece of this. How you want to deal with the budgetary
pieces of what is forgiven or not, you have got to find a
politically viable solution. What they cannot afford to do is
to pay the interest.
Chair Brown. I guess that is a yes, that the program's debt
must be forgiven. Is there any other route to go there? I
understand the political difficulty of that which you cite,
but----
Mr. Wright. So I know there have been conversations that I
was a part of that says they would set aside and reassign the
debt. Frankly, you just cannot make it go away. You can
reassign it back to Treasury. You could direct the Treasury
sell fund, the interest side of the equation. I just got into a
point that says the other side, they cannot make those
payments. I am with you on that. It likely is going to require
a creative Washington-type solution to get to the finish line.
Chair Brown. Yes, well, a Washington-type solution might be
put it aside and ignore it, but that is not really a solution,
and you know that from your----
Mr. Wright. Seven years into----
Chair Brown. Thank you. Dr. Kousky, in Philadelphia, lots
of talk about the free market and the free market taking care
of this, and I guess that means the free market would take care
of flood maps and mitigation and insurance and clean-up and all
the things that Ms. Hernandez mentioned, and that does not even
seem in the realm of possibility, and those who argue for free
markets for everything.
Let me ask you this, Dr. Kousky, do you see the private
industry taking most of the risk from the NFIP?
Ms. Kousky. Good question. The most recent estimates from
the National Association of Insurance Commissioners, which
collect data on private flood insurance, are that less than 10
percent of residential first-dollar policies are with the
private sector. So the NFIP is ensuring over 90 percent of
residential flood. And while advancements in data and modeling
have led to this small increase in the private sector, which
can be good for consumers with greater options and maybe lower
cost, it is unlikely the private sector is ever going to be
able to provide coverage for a substantial share of those at
risk.
We did a detailed assessment of the private market several
years ago, and all the stakeholders we talked to found this to
be the case, that there are just high-risk areas that the
private sector is not going to be able to cover. And, in fact,
when you look around the country right now where risks of other
climate disasters are increasing--southern Louisiana, Florida,
parts of Texas, parts of California--we are seeing insurers
pulling back and limiting coverage and raising rates, not
leaning into this risk.
Chair Brown. Thank you. Senator Scott.
Senator Scott. Thank you, sir. Mr. Wright, thank you for
being such a proud South Carolinian and representing us so
well. A couple of questions for you.
I think it is fascinating that we spend a little time on
$20 billion that we have in the flood insurance program and the
debt that we have, taking the 1.5 percent interest rate to 5
percent, one-third of the overall revenues that come and go out
for interest payments and servicing the debt, that means that
fewer dollars actually solve the problem of flood insurance.
I thought what you were saying there and said, you know,
what if you were a country that had $31 trillion of debt, and
saying 1.5 percent goes to 5 or 6 percent interest. Multiply
that by $31 trillion, and you come up with the single largest
line item in all of your expenditures. It is not your military.
It is not your domestic program. It is not the futures. It is
literally servicing your debt and maybe without actually
reducing a single penny of your debt. So if we have a crisis at
$20 billion in the flood insurance program, and we do, there is
no way to forgive $16 billion or $16 trillion of our national
debt. That has to be paid back.
So you think about the actual weight of the out-of-control,
reckless spending of my friends on the other side of the aisle,
and you come to the conclusion that sooner or later you have
got to pay the piper. And the challenge that we are facing as a
Nation is that we seem to be completely disconnected from
reality, that somehow, some way, we can continue to have
conversations around raising our debt ceiling without actually
reducing our spending, ever. That seems to be some place that I
have not been, an alternate universe does not exist.
And for this concern, I am glad to hear that we are serious
about figuring out how to deal with the $20 billion of debt
that we have in the National Flood Insurance Program that is a
crisis for the program. Thirty-one trillion dollars is a crisis
for the American people, with $98,000, on average, being owed
by every single American.
So thinking about what we are trying to figure out here,
more than 2 years after passage of the American Rescue Plan Act
(ARPA), Democrats' reckless spending still has $150 billion
sitting on balance sheets around the country. Of the funds that
have been spent, there are far too many examples of waste,
trying to figure out how to meet the obligations without
wasting money, billions of Federal dollars spent on golf course
irrigation, bids to host the World Cup, and other activities
that are almost certainly not addressing the needs of
vulnerable people.
Additionally, programs specifically designed to mitigate
floods saw substantial funding increases. FEMA's Building
Resilient Infrastructure Communities, BRIC, or the FMA, the
Flood Mitigation Assistance Program, or the STORM, as you know,
all the acronyms of alphabet soup here, and numerous other
programs at the Army Corps of Engineers and other agencies saw
billions of new funding. My simple point is that sometimes
excessive spending on programs does not always solve the
problem.
That leads to my question. Is now the time for more
spending, and is now the time that we should ensure all this
funding is spent in smart, targeted ways to mitigate risk?
Mr. Wright. Thank you, Senator. I think where we currently
sit today, the allocations that have been made are sufficient
to address the near-term pieces of this risk. The biggest
challenge, and you have highlighted this, is getting the money
to the rural and non-urban context. The money is available.
Now, let us go back through and spend it well.
Senator Scott. How do we do that? Give me some examples.
Some of the towns that we have, of course, as you look at the
areas that are--I use air quotes to say ``prone to flooding,''
like Charleston, where I grew up, but you see so many of the
challenges and the incidents in areas that have zero flood
insurance. We had the other witness talk about the 90 percent
of flooding will be paid for by the NFIP and not by private
insurance. Well, the mapping that we are talking about, not
only are we looking at the next iteration of the mapping, we
need to rethink the definition of mapping to include the
interior of this Nation, that it continues that flooding, and
we have not done that.
So expanding flood insurance, I think, is a good idea, but
how do we get to the question on the table?
Mr. Wright. Yeah. I think, as I mentioned, that Community
Disaster Resilience Zones legislation that Congress passed last
year is really pivotal. It says, go identify 100 places across
the country where the need is great and the natural perils are
going to collide, and make sure that they get the help they
need and they get the priority that they need. I think that is
a place where the funding and the authorities that Congress has
already put in place need to be used by FEMA and the National
Flood Insurance Program, so that, yes, we are helping
Charleston, but we are also helping Georgetown, and we are
helping Columbus, Ohio, and we are addressing the needs in
Montgomery, Alabama. All of those need to be addressed, and I
think the tools are there if the agency will choose to act.
Senator Scott. Thank you, sir.
Chair Brown. Thank you.
Senator Menendez, of New Jersey, is recognized.
Senator Menendez. Thank you, Mr. Chairman. Let me first
start off by thanking you and the Ranking Member for holding
this hearing. I hope it marks the start of an effort by the
Committee to provide a long-term reauthorization and reform of
the National Flood Insurance Program, and I certainly look
forward to working with the Chairman and the Ranking Member.
Among other things, our NFIP RE Act is, I think, a good
bipartisan piece of legislation to try to achieve that.
Now, despite flooding being the most frequent and costly
natural disaster, just 4 percent of Americans have a flood
insurance policy. FEMA has long struggled to keep premiums
affordable, and it appears that the NFIP's new rating
methodology, Risk Rating 2.0, has only made flood insurance
more out of the reach for working in middle-class families.
In Patterson, New Jersey, where the median household income
is $50,000 a year, 180 homeowners will see their premiums
increase from an average of $1,500 a year to an average of
$4,000 a year. In Keansburg, New Jersey, where the median
household income is $76,000, 1,000 policyholders will go from
an average of $1,300 to $3,500, and the list goes on and on.
But insured or not, flooding is going to happen, and when
it does, the Federal Government will be in the unfortunate
position of providing less beneficial, more expensive disaster
relief aid.
So Ms. Kousky, you have stated previously that flood
insurance should be available to any household in need. Should
not Congress create an affordability program to help families
cover the cost of flood insurance?
Ms. Kousky. Yes. Thank you for this question. I agree that
this is a really important policy priority for the program
right now. We know, as you mentioned, that there are no good
substitutes to insurance when it comes to having access to
sufficient funds quickly to cover the financial shock of a
severe flood or any other big disaster. And we also know for
many households, flood insurance premiums are simply more than
they can afford to pay. But without that financial safety net,
these types of extreme disasters can create downward financial
spirals for households where they might default on loans or
accumulate debt or exhaust their savings.
And so a means-tested affordability program would make sure
that everyone had the financial protection that insurance
provides, which improves not only their recovery but also
provides positive spillover benefits to the community as people
are able to get back on their feet faster.
Senator Menendez. Thank you. Thank you. And after all,
insurance is about spreading the risk. The broader the pool of
those participating, the less likely that the premiums will be
prohibitive. The smaller the pool, then the prices go up. So we
should be wanting and trying to make the pool as big as
possible.
Far too often natural hazards significantly disrupt our
economy, hurting the Nation's productivity and financial well-
being for families. When the private market fails to provide
sufficient insurance to protect assets and property, the
Federal Government has an imperative to step in. Ms. Hernandez,
one example of this is the USDA's crop insurance program. Do
you know how much it costs the Federal Government per year?
Ms. Hernandez. Thank you for the question, Senator
Menendez. The crop insurance program is not one that Headwaters
Economics works with. From what I understand, the cost is
something on the order of $7 to $10 billion annually. Of
course, with an insurance program that is federally funded,
whether NFIP or crop insurance, the preferred approach is to
reduce risks so that you are reducing claims.
Senator Menendez. Right. So it is $8 billion. The CBO
projects it will cost $40 billion over the next 5 years. That
funding is critical to keeping insurance affordable for the
farming sector, which makes up 1 percent of our Nation's GDP.
By the same token, coastal communities make up 30 percent of
the Nation's GDP, but the premiums in the National Flood
Insurance Program remain out of reach for many coastal
communities. The NFIP does not receive any Government
appropriations to incentivize participation. Like the crop
insurance program, it is equally in our national economic
interest to provide sufficient resources to ensure that flood
insurance coverage is affordable and that we invest in
mitigation to reduce future damage. And so I hope we will keep
that in mind as we move toward that effort.
One last question. One legislative proposal provided by
FEMA is the idea of continuous coverage, which would allow
policyholders to keep their NFIP discount if they leave the
program to go to private flood insurance but later return to
the NFIP. Ms. Kousky, do you know of any property and casualty
company that offers continuous coverage for its policyholders?
Ms. Kousky. No. That is not something the private sector
would do.
Senator Menendez. Yeah. I have never heard of that either,
and this is just one of the ways in which we are having
challenges with the NFIP program as it exists.
Thank you, Mr. Chairman.
Chair Brown. Thank you, Senator Menendez.
Senator Boyd Britt, of Alabama, is recognized.
Senator Britt. Thank you, Mr. Chairman. Thank you all for
being here today and your willingness to testify before this
Committee.
Mr. Wright, you have a strong background in working with
families and communities that have suffered damage from
flooding and severe weather. Since 2011, Alabama has led in
building resiliencies into home construction. In Alabama, we
have a State program that supports investments so that families
can fortify their roofs against wind damage. That investment
allows homeowners to get a discount on wind insurance.
Yesterday May 1, 2023, Alabama celebrated 44,000 homes
fortified. We certainly have seen success in our State. It is
my understanding that you were able to join Commissioner Fowler
and Deputy Commissioner Chapman to be able to see this
firsthand. Can you speak to what you saw in the great State of
Alabama, and any lessons we can learn and take into the topic
we are discussing today?
Mr. Wright. Absolutely. Thank you, Senator Britt. I was in
Mobile and Dauphine Island last night before I made my way
here. And what is striking about what has played out here is
the lessons learned from Hurricane Ivan and others, and the
destruction that played out said that those coastal communities
knew they needed to do something.
What Alabama did uniquely is find a way to make sure
everyone knows what the risk is, to put incentives in place on
the insurance place, to put building codes in place, and to put
a grant program. The grant program in Alabama is fully funded
by Alabama. They do not use Federal dollars in that space.
But when Hurricane Sally came and approached and hit that
direct line straight on, what we were able to see is that they
withstood the wind. They were not getting water intrusion in
those spaces. These homes had a combination of wind insurance
as well as flood insurance in that space.
And so I think it is an example, as we look at the broader
flood elements that are here, we need to make sure that we are
dealing with the entire ecosystem, have the right ways to make
sure that we are not making the matter worse, because all new
construction in southern Alabama meets those standards. We then
nudge folks who have the ability to afford to do it because
they get a price consideration, and for those who cannot afford
it there is a Grant program to help them along the way.
Senator Britt. Well, I appreciate you taking time to see
the success firsthand. I certainly believe many of the lessons
that we have learned in Alabama and the changes that we have
made could be applied to this space as well.
Mr. Wright. Agreed.
Senator Britt. Given the scale and complexity of flood
risk, it has been historically difficult to estimate and manage
the damage and cost related to flooding. The level of damage we
have seen from recent storms and related natural disasters have
even further emphasized the need for FEMA to pursue a framework
that more accurately reflects risk and effectively manages the
cost of flooding under the National Flood Insurance Program.
This not only includes managing costs following a natural
disaster but also by promoting sound mitigation efforts in
communities ahead of these events.
What steps has FEMA taken, Mr. Wright, to help strengthen
flood mitigation efforts in communities across our country, and
protect homeowners and lower the national flood risk?
Mr. Wright. Yes. I appreciate the elements that are there.
So FEMA does a tremendous amount of work related to helping
people understand the risk. The maps get criticized quite a
bit, but I will tell you there is no other country on the
planet that provides parcel-level risk analysis for a natural
hazard like flood. It is the only place where it goes.
And so we use that so that we can keep ourselves from
repeating the problems and move the other side, and then
address those that are not yet there.
There has been talk here about Risk Rating 2.0, and while I
am 5 years removed from making those decisions, I did launch
that program because there were up to 25 percent of the
policyholders who were paying too much. They need to have their
price reduced, and others that had more risk.
And so we have got to come to this place by which we do
have insurance that is actuarily sound, that customers can
count on that we make investments in a neighborhood scale to
reduce that risk, and make sure that we do not make the problem
worse.
Senator Britt. Well, in your opinion, what more could FEMA
be doing?
Mr. Wright. So FEMA could be making--so I think that FEMA
needs to accelerate the actions that they have in place.
Senator Britt. OK.
Mr. Wright. So I mentioned CDRZ. It is in place. I think
they are talking about it more than doing. They put Swift
Current in place. I know that staff on both sides of the aisle
worked very closely with that over the last 7 or 8 years. It is
the right thought. It is lagging.
Senator Britt. It is lagging. So the effectiveness is not
there yet.
Mr. Wright. Correct.
Senator Britt. OK. Thank you. My time has expired, but I
really appreciate you all being here today.
Chair Brown. Thank you, Senator Boyd Britt.
Senator Cortez Masto, of Nevada, is recognized.
Senator Cortez Masto. Thank you, Mr. Chairman. Thank you to
the panelists who are joining us today.
This year, Nevada and other Western States have seen
record-breaking amounts of precipitation, with the snowpack
levels at 144 percent higher than average. In fact, the Sierra
Nevada snowpack is currently the largest snowpack in the world.
And President Biden declared a major disaster in Nevada. He
ordered Federal funds to be available to eligible local
governments in the counties of Douglas, Eureka, Lincoln, Lyon,
Mineral, and Storey. These funds will repair or replace
facilities damaged by the severe winter storms, flooding that
comes from it, landslides, and mudslides.
Mrs. Hernandez, let me ask you. The Nevada Department of
Insurance earlier this year urged Nevadans to get flood
insurance. Many lifelong Nevadans have never needed a policy,
but now will need it due to the climate change. Thousands of
homes in Nevada will be at risk of flooding over the coming
years. How do we incent and educate homeowners in places not
historically associated with flooding to get a policy? And I
guess my question is, what has worked in Montana?
Ms. Hernandez. Right. Well, first of all, thank you so much
for that question, and it has themes that have come up in terms
of letting folks know that there is risk. And we are also
seeing floods from snowpack in other parts of the country,
including Montana.
The issues are, as Senator Scott mentioned, that there are
places in the country that are flooding that it was not
historically a problem. So we can definitely support FEMA in
expanding and accelerating maps and education so that there is
an accurate accounting of where the risk is. That would also
help get folks enrolled in NFIP.
The issue with that is if we are going to have education
that allows people to know that there is flood risk, it has to
be paired with resources to do something thing about it. And
that is that, you know, the primary, what is being communicated
to us on the ground when we work with community partners is,
OK, we are getting our FEMA floodplain updated or mapped for
the first time, but it not coming with any resources so that we
can actually address the flood risk.
And so I think that a pairing of those resources is really
important, and it is going to help with the solvency of the
program.
Senator Cortez Masto. Thank you. Let me touch on something
because I agree with you that resources are necessary here, and
that is part of the challenge.
In President Biden's emergency declaration for Nevada, it
notably left out one of our affected counties, which is
Churchill County. The county did not trigger Federal assistance
in part because they put preventative measures in themselves,
right? They paid for it themselves. They put preventative
measures in, and it is unlikely they will get reimbursed for
those preventative measures.
So how can Federal funds do a better job of encouraging
prevention? I mean, isn't that what we really want on the front
end, is to have them anticipate--we see the snowpack, we see
what is going to happen, let's make sure the flood is not as
bad as it potentially could be. We are going to put in
preventative measures, but then the burden is all on them. How
do we address that?
Ms. Hernandez. Yes. Thank you again for the question and
the opportunity to respond. I could not agree with you more. I
think that there has been a pattern in this country of making
mitigation funds available only following disasters. That is
not the best use of taxpayer dollars, and we are seeing
increasing risk in new places. And so absolutely, we should be
encouraging the Federal agencies to offer mitigation resources
prior to disasters, not only following disaster declarations,
which not all communities managed to get.
Senator Cortez Masto. Right. Any other panel members,
comments?
Mr. Wright. If I could, Senator, I do think that you hit a
very pivotal thing, that I think as we look at natural
disasters and FEMA's work over the next decade, given these
growing costs, some fundamental changes need to be made so that
when communities are making the investments, they are still
meeting the partnership on the other side. At some point there
is someone that says if I avoid acting, then the Federal
Government will come pay the full bill for me. If I take
action, then I do not get help. And we need to fix that,
because that answer might have worked when the Stafford Act was
put in place in the 1980s. It is not the right answer today.
Senator Cortez Masto. Yes. Thank you. No, I appreciate
that. Thank you so much.
Chair Brown. Thank you.
Senator Vance, of Ohio, is recognized.
Senator Vance. Great. Thank you, Mr. Chair, and thanks to
the two witnesses for being here with us this morning.
So I want to ask a question just about geospatial analysis
and how it determines what goes in the flood zones and what
stays out of the flood zones.
So most people assume that FEMA has been effective in
determining low-lying areas in 100-year flood zones, but
geospatial specialists seem to agree almost half of the
structures in our country apparently should be considered flood
zones, or those that should be considered flood zones are not
and that obviously leaves out a huge number of American homes.
Now why is that? Well, NFIP recently changed to using
geospatial technology to assess premium rates, but they
currently still use horizontal maps to identify flood areas.
Now, if NFIP were to use the geospatial technology to replace
their old maps with geospatially determined vertical-oriented
flood maps, they could more accurately identify buildings with
severe flood risk.
So just one example, as I understand it, in the wake of
Hurricane Ian, which hit Lee County in southwestern Florida
particularly hard, my understanding is that only 25 percent of
the homes had Federal flood insurance and that if geospatially
based maps had been used, in fact, a much larger share of the
homes in Lee County would have been covered.
So without litigating the ins and outs of climate change, I
guess one of the questions that I have is when we talk about
areas that are hit with unexpected flooding and we attribute it
to climate change, is at least part of what could be going on
that we are not using accurate maps and that there are areas
that clearly--and I am directing this question first to Mr.
Wright, but I would love to get Ms. Hernandez's view as well--
are we actually not accurately identifying which homes are most
susceptible to floods, and consequently, are we basically just
ignoring a large area that has a high risk and instead
attributing it to climate change when, in reality, we are just
not accurately determining where the flood risks actually exist
in this country?
Mr. Wright. Yeah. Thank you, Senator. I think that as you
look at it, FEMA is using the same root technology for the
rating and for the maps. The key difference here, and this
really ties back to something that you may want to look at in
the reforms and reauthorization of the program, the mandatory
purchase delineation is described, required by law and in the
regulation, that is set at the 1 percent annual chance. And so
the same inputs are going in, but there is a dynamic way to
deal with the price that is now disconnected from what is a
pretty old-school way, as you described, that says they draw a
line. It says if you are inside the line, you must buy
insurance. If you live just outside the line, you do not. I
think we have got to change the education for folks to go if
you live outside, no one prohibits you from getting insurance.
In fact, it is cheaper.
And so I think there is a change that has to happen in that
space about where that limit and delineation, how people
understand it.
Senator Vance. Interesting. OK.
Ms. Hernandez, I would love to get your views too.
Ms. Hernandez. OK, so thank you, Senator, for the question.
I certainly cannot speak to the engineering and modeling behind
the flood mapping. What I can say is from the community
experience, I have been on the ground in communities that are
having their floodplain maps updated, and it is scary and, you
know, a jarring experience because it is actually working in
creating the incentive to mitigate the risk.
There are, you know, there is new technology. Often what we
are finding is that the flood risk is much higher than was
previously understood. And whereas that is a very difficult
experience for a community to go through, it is definitely
working in creating an
incentive for mitigation. Then we have to help communities so
that they know what to do about it.
Senator Vance. Yeah. Can I just follow up, Mr. Wright, on
something you said? You mentioned sort of the mandatory
insurance within the line, the nonmandatory insurance outside
the line. I mean, just in your experience, does that have a
psychological effect on homeowners? I mean, if they are right
outside the line and it is not mandatory, do they say, ``Well,
you know, we are not in the floodplain zone so we are fine''?
Mr. Wright. For the most part.
Senator Vance. Interesting.
Mr. Wright. I do think that there are places--we watched
this in Hurricane Harvey--where something like a third of the
claims that were paid were outside the line, but they were
people in low-lying, flat areas, and they knew they were at
risk, and so they did lean in and buy that insurance. I think
for many of us, if we are told you do not have to spend money,
you are less likely to spend it.
Senator Vance. Yeah, yeah, got it. And my understanding is
in terms of what falls in that 1 percent mandatory mapping,
that is they are using the old horizontal technology, not
geospatial technology. Is that right or do I have that wrong?
Mr. Wright. I would say it is a bit more intricate than
that. They are still using geospatial technologies. What you
are seeing there is that difference that, generally speaking,
there is a dynamic parcel-by-parcel way, is how we mapping
across the country. And FEMA is still using a bright line--you
are referring to as the horizontal line, but that equivalent
side in that world.
Senator Vance. Got it. OK. Thank you, both.
Senator Cortez Masto [presiding]. Senator Warren.
Senator Warren. Thank you, Acting Chairman.
Over the last 25 years, 99 percent of U.S. counties
experienced at least one flooding event. In other words,
flooding events are nearly universal. But people of color get
hit harder due to aging infrastructure, structurally unsound
homes, and Federal policies like redlining that segregated
communities of color and kept them closer to floodplains.
Yet low-income neighborhoods and communities of color
receive limited investments in flood protection. Reports show
that FEMA disproportionately invests in protecting homes in
White and wealthy communities from floods, reducing insurance
costs and boosting property values for those homeowners.
Last year, FEMA Associate Administrator for Resilience,
David Maurstad, said that FEMA does not track the race or
ethnicity of people who receive aid, saying, and I quote him
here, ``because we don't collect it. We don't discriminate
against individuals,'' end quote.
But just because there is not intentional discrimination
does not mean that aid is distributed equitably.
Ms. Hernandez, you are an expert on community development
data and equity. Can you just describe how the failure to
collect key demographic data can exacerbate inequity in FEMA
programs?
Ms. Hernandez. Thank you, Senator Warren, for the question.
So yes, absolutely, without accurate data, it is very hard to
reach people with services and to direct those services to the
people that need them most, so I could not agree more.
I had a colleague yesterday just looking at some numbers
for who lives in the highest flood risk places in this country,
and she was just telling me that there is a much higher share
of people in poverty, families in poverty, there is a higher
share of people that are older than 65 living in the most high-
risk places in this country, and a higher share of people who
self-identify as people of color and Hispanic. So certainly,
there are a lot of folks counting on both disaster mitigation
and response services in the high flood risk areas, and so
absolutely, data is needed.
I would say that that is true for FEMA and also for local
governments and community leaders who are trying to make their
case, and advocate for resources.
Senator Warren. OK. All right. So we start out structurally
that there are more people of color, there are more poor people
in areas that are prone to flood, but we cannot track what is
happening if we do not collect the data. Is that a fair
sentence about it? OK.
Ms. Hernandez. Yes.
Senator Warren. So a year and a half ago, FEMA introduced
Risk Rating 2.0, which is a new risk rating methodology for the
National Flood Insurance Program, and the update include more
variables, datasets, models on how the flood insurance program
decides how much insurance for each individual house should
cost, all with the aim of delivering more equitable pricing for
policyholders, and I hope that FEMA delivers on these important
goals.
But we also need more far-reaching reforms, and that is why
last year Congressman Benny Thompson and I introduced the FEMA
Equity Act, to ensure greater equity in disaster assistance
programs, including by improving data collection to measure
disparate outcomes and participation barriers, and requiring
equity criteria be applied to policies and programs.
Now Ms. Hernandez, from your experience, would the
provisions in our bill have helped make FEMA programs like the
National Flood Insurance Program more equitable so they reach
all communities that are in need of disaster assistance?
Ms. Hernandez. Thank you, Senator, for the question. So I
am not prepared to speak to any specific legislation, but
provisions like those are absolutely helpful for encouraging
and supporting FEMA in reaching the people who are most
impacted by disasters and for advancing mitigation as well.
Senator Warren. You know, for too long front-line
communities have been disproportionately impacted by the
devastating effects of natural disasters. We need to work to
address that injustice and to ensure that Federal programs are
actually fixing the disparity, not making it worse by forcing
people to pay more than their fair share or by limiting relief
to the people who need it most.
The Biden administration has made important reforms to
address inequities in Federal disaster management programs, but
there is more to be done both to codify and to build on these
changes, and I will continue to fight for that.
Thank you. Thank you, Madam Chair.
Senator Cortez Masto. Senator Kennedy.
Senator Kennedy. Thank you, Madam Chair. Mr. Wright and Ms.
Hernandez, thank you both for being here.
Mr. Wright, do you own a home?
Mr. Wright. I do.
Senator Kennedy. Do you have a mortgage?
Mr. Wright. I do.
Senator Kennedy. Does your mortgage company require you to
carry homeowners insurance?
Mr. Wright. It does.
Senator Kennedy. OK. Suppose your homeowners insurer came
to you and said, ``Look, Mr. Wright, I cannot tell you why but
I am going to start raising your premium 18 percent a year,
because we hired this group called Milliman, and they have come
up with this magical algorithm that can take a look at your
home, not your neighbors' homes, but your home, and predict,
over the next 30 years, your risk, every single year, of
whether you are going to have a fire. And so we are going to
start raising your rates 18 percent a year. We cannot tell you
how long we are going to stop raising those rates, and we
cannot explain to you the Milliman algorithm because it is
secret. If we showed it to you, we would have to kill you.''
What would you do?
Mr. Wright. You know, I get increases in----
Senator Kennedy. Would you try to find a new insurer?
Mr. Wright. I would ask questions to seek to understand,
and I may shop for another insurer.
Senator Kennedy. What if you cannot shop? What if there are
no other insurers and your mortgage company says, ``No, you
have got to take this insurance''?
Mr. Wright. Senator, I think that as we look at these
dimensions, there are pieces of algorithms, as you speak to,
that we should be clear and show folks what those pieces are
and we have to understand----
Senator Kennedy. Yeah, but, you see, FEMA does not. FEMA
does not. And FEMA has rolled out this program. They will not
share the algorithm. There are 500,000 Federal flood insurance
policies in America. Ten percent of them are in my State. My
people do not have million-dollar mansions on the Gulf. These
are working people, and their mortgage company requires them to
carry flood insurance, it is the only way they get it.
For example, in Cameron Parish, the average new cost of
flood insurance there is $4,454. The median household income is
$48,000. And in Plaquemines Parish the new price for insurance
is $5,431. The median household income is $65,000. In Saint
Mary Parish, a new flood insurance policy costs $5,226, and the
median household income is $40,218.
Now, these people cannot afford flood insurance, but they
will have to give up their home if they do not carry it. And if
they go to FEMA and say, ``You raised my premiums 18 percent
this year. How long are you going to keep doing it?'' They say,
``We cannot tell you that.'' And these people say to FEMA, my
people say to FEMA, ``Have you considered levees, the impact of
levees?'' and FEMA says, ``We do not have to answer that.''
And then my people go to FEMA and they say, ``Well, why are
you doing this?'' ``Well, we have this new algorithm.'' And
they say, ``Can we see the algorithm, to hire somebody to look
at algorithm to see if you are considering levees?'' and they
say, ``Oh no. If we show you the algorithm, we will have to
kill you.''
And then my people find out that in 2022, in a secret memo
that FEMA did not want to come out, they are estimating--FEMA
estimates that 900,000 policyholders, 20 percent of all the
policyholders for flood insurance in the country, they figure
they are going to drop their insurance.
So what is the point of flood insurance if nobody can
afford it, and what is the point of having a Federal agency,
paid for with people's taxpayer dollars, if they will not
explain to the people what they are doing?
Mr. Wright. So Senator----
Senator Kennedy. Are you still for Risk Rating 2.0?
Mr. Wright. Senator, I am 5 years removed from making
decisions in FEMA, and yes, I was the person who launched Risk
Rating 2.0. And so we have had these conversations, and I am
happy to continue to do so.
Senator Kennedy. Well, you did not. You did not. No, this
is not personal to you. I do not know what your involvement
was. But the people that implemented this and rolled it out in
this manner ought to hide their head in a bag.
Mr. Wright. So I do think that FEMA should be transparent
about what they are doing. I also know that these insurance
calculations are more like calculus than they are arithmetic,
but the risks are growing. The cost of wind insurance in
southern Louisiana is just as high or higher. And so I think
there is an affordability need, for sure, but we have got to
look at this. Yes, FEMA should be showing the pieces. We need
to make sure people understand it. I think people need to know
which mitigation----
Senator Kennedy. But they are not. They are not.
Mr. Wright. And Senator----
Senator Kennedy. Mr. Wright, you know that. Nor do the
people at FEMA seem to care.
Mr. Wright. All I can say to you is that there are
increasing risks. Those costs, in some places--I was just in
Cameron and Calcasieu Parish last month. I understand this.
They are still recovering from Ida and Laura that came through.
Senator Kennedy. I have got to wrap this up. If the IRS
came to you and said--I do not know how much money you make; I
do not want to know--if the IRS came to you and said, ``We are
going to do your taxes for you this year, Mr. Wright. You owe
$4 million in income taxes, but we cannot tell you how we came
up with the figure.'' Do you think that would be fair?
Mr. Wright. That would not be a fair action by the IRS.
Senator Kennedy. No it would not, would it?
Chairman Brown [presiding]. Thank you, Senator Kennedy.
Senator Scott has a question, then I will do a question. I
think Senator Fetterman is on the way.
Senator Scott. Thank you, Senator Kennedy, for your
thoughtful approach on getting questions answered. That would
not be fair. Thank you.
To flood mitigation and repetitive losses, my understanding
is, according to FEMA--and Mr. Wright, the question for you,
and I am happy for you to weigh in, Ms. Hernandez as well--1
percent of the losses account for about 30 percent of the
payouts. Said in numbers, it is about $12.5 billion of damages,
averaging roughly $84,000 per property that has experienced a
loss, after a loss, after a loss, after a loss, and sometimes a
fifth loss.
My legislation takes steps toward ending this cycle of
flooding and rebuilding, and flooding and rebuilding, and
flooding and rebuilding, followed by flooding and rebuilding.
It requires local communities to think about better ways to
mitigate the risk at these properties.
Trusting flood risk is not simply about the property. When
you have that many consistent floods, you typically have a
significant loss of lives. Thoughts, quickly, since Senator
Fetterman is here.
Mr. Wright. Yes, thank you, and I think that this issue
related to repetitive losses is a very unique one because FEMA,
on the national flood insurance, is ostensibly the insurer of
last resort for flood. Under the current statute, they have no
choice but to offer flood insurance to anyone who seeks it.
As I said in my testimony, we need to address the
mitigation from two angles, one of them at the neighborhood
scale. We have got to address that thing more broadly. The kind
of projects that we talked about in Three Forks are cases in
point, give the water a place to go.
And I would go further because in the private market side
of the equation, by the time you have filed that many claims,
they tell you that you cannot have that insurance at that price
any longer. And we began to call these the extreme repetitive
losses when I was there, and I think you have got to find a way
to, yes, lean on the community because I think your bill as
proposed, outlines--you have got to do planning for this. But
these most egregious ones that make the front page of the
newspaper----
Senator Scott. Yes.
Mr. Wright. ----are often going to be structures that
someone needs to walk in and say, ``Insure it yourself. Stop
making someone else pay this bill.''
Senator Scott. Thank you.
Chair Brown. Thank you, Senator Scott.
Senator Fetterman, of Pennsylvania, is recognized.
Senator Fetterman. Thank you, Mr. Chairman.
Pennsylvanians have seen firsthand the awful impact of
flooding on their homes and lives. During Hurricane Ida,
residents in and around Philadelphia sheltered within the storm
as the storm tore their homes apart. People shared their
stories of swimming out of their homes. Part of the Vine Street
X-Way was underwater, and there is roughly $3 billion in
damage.
As climate change makes storms even worse, flood waters are
showing up outside of federally designated flood zones like
Middletown, Pennsylvania, which flooded in 2017, despite being
away from the Susquehanna River, and Swatara Creek, or your
county where I grew up in. Some of the townships were impacted
by a 2018 flood that is few--which has had only two policies.
Ms. Hernandez, how does the National Flood Insurance
Program in rural communities experience increased flood risks
for the very first time?
Ms. Hernandez. Thank you, Senator Fetterman, for that
question. So interestingly, the last two comments have been,
you know, about communities that have been flooded over and
over and over again, from Senator Scott, and communities that
are seeing flood risks and floods for the first time. And I
would say that in all of these cases, rural communities need
resources and help.
In the case of repetitive floods, people are exhausted and
local government staff have their time split between many
responsibilities. In the case of communities that are seeing
floods for the first time, there is not the know-how and the
institutional knowledge to navigate the solutions that are
needed. So this is a place where State agencies and Federal
Governments can lend lot of help.
Senator Fetterman. So how can we improve the education
about flood risks before disasters and get resources to them
faster after disaster?
Ms. Hernandez. Thanks for the followup question, Senator
Fetterman. Education and mapping are really critical first
steps. Information for residents living in flood-prone
communities, like real estate disclosures, are super important,
but then there is the followup. It is after you know that you
have flood risk, you need to have help understanding the
solutions.
And as Mr. Wright has called out several times, the most
effective solutions, both in terms of safeguarding people's
properties and the most responsible use of taxpayer dollars, is
to do flood risk reduction projects at a neighborhood or
community scale. That really involves your local government,
who is responsible for those types of infrastructure decisions.
Senator Fetterman. And doctor, no, please go ahead.
Mr. Wright. I think the point there that is so important,
and as we watch communities who have no recent memory of
flooding, experience it for the very first time, it creates
this reactive piece, and it is one thing to tell folks, which
is true, if it rains there, it can flood, but the flip side is
until it invades their community the first time, they are not
taking action.
Senator Fetterman. Thank you. Thank you, Mr. Chairman.
Chair Brown. Thank you, Senator Fetterman. Thank you all.
Let me do one last question, and Dr. Kousky, to you in
Philadelphia. With the difference in the speed and extent of
recovery largely based on the family having insurance, how
important is it to create an NFIP affordability program so that
coverage is expanded?
Ms. Kousky. Yes. As we have discussed, I think this is
really necessary. Research shows how difficult people's
recovery can be without the financial protection of insurance,
and so expanding access to insurance for those who cannot
afford it provides this protection for them, but it is also a
necessary condition for other aspects of recovery. We see
spillover positive benefits into emotional well-being, physical
and mental health, educational attainment, the stability of
families, which are all tied to being able to access the
resources needed to make repairs and improvements and get their
lives back together. So something to help folks with the cost
of
disaster insurance would have these wider impacts on well-being
as well.
Chair Brown. Thank you. Thanks to the three witnesses for
joining us. Thanks to colleagues who were here and asked
questions.
For Senators who wish to submit questions for the record,
those questions are due 1 week from today, Tuesday, May 9th. To
the witnesses, you have 45 days, please, to respond to these
questions.
Thank you again. With that, this hearing is adjourned.
Thank you all.
[Whereupon, at 11:25 a.m., the hearing was adjourned.]
[Prepared statements, responses to written questions, and
additional material supplied for the record follow:]
PREPARED STATEMENT OF CHAIR SHERROD BROWN
This hearing is a continuation of our efforts to enact a long-term
reauthorization of the National Flood Insurance Program. The program
has been extended 25 times since September of 2017. The latest
extension will expire on September 30th of this year.
We have heard from multiple groups representing the broad scope of
stakeholders: realtors, public works officials, the business community,
floodplain managers, mortgage lenders, and Federal Emergency Management
Agency (FEMA) officials across two Presidential administrations.
They all delivered the same basic message: a long-term
reauthorization of the NFIP is essential because flooding is the most
common and most costly natural disaster facing families, businesses,
and communities across the country.
Multiple factors are involved in the increase in flooding.
Outdated flood maps, population growth in at-risk areas, land use
patterns, and over-stretched infrastructure in many areas play a role.
And climate change is only making it worse. It's causing more
frequent extreme weather events, and it's making rainfall and snowfall
less predictable.
In recent weeks we have witnessed the highest river flooding in
over 20 years in parts of the Upper Mississippi Valley.
In California, unusually wet weather has resurrected a lake that's
been dry since the 1980s, inundating productive cropland and
threatening downstream communities.
An extreme rainstorm overwhelmed Fort Lauderdale with over 2 feet
of rainfall.
According to NOAA, nearly half of the United States is at risk of
flooding this spring.
All of this, and hurricane season hasn't even started yet.
Flooding is devastating to families, homes, businesses, and
communities. And it is only getting worse.
These disasters also often fall hardest on low-income families and
communities that have fewer resources to prepare for and respond to
them. We will hear from one of our witnesses about the particular
challenges faced by rural communities.
We need to help our families and communities to adapt and become
more resilient both to the flooding we face now, and to the increases
we know are coming in the next several decades.
And whenever possible, we want to help communities avoid extreme
flooding altogether, through predisaster flood mitigation.
The NFIP is critical to that effort.
It provides nearly $1.3 trillion in coverage to over 4.7 million
homes and businesses in over 22,000 communities.
There are a number of things that separate the NFIP from the
private insurance industry.
Unlike a private insurance company, the NFIP does not just provide
insurance. Its job is to prevent and minimize flood damage in the first
place, not just help with recovery.
The NFIP combats the overall threat of flooding through four
related components:
Flood insurance;
Floodplain management;
Floodplain mapping; and
Mitigation.
The Bipartisan Infrastructure Bill provided a down payment on new
opportunities for communities to help homeowners, by providing
additional funding for grants to mitigate homes prior to disaster--or
to expedite post-disaster buyouts for those who chose to move out of
harm's way.
We need to build on that investment.
Because of continued denial of the breadth and scope of the climate
crisis by some members of Congress--unbelievably, a significant number
in this Congress continue to deny the science of climate change when
the cities in their States are at sea level or below and their forests
are on fire--we know flooding will get worse and require even more
resources and more aggressive action to prevent.
We must reauthorize and strengthen the NFIP, and invest in flood
mitigation and floodplain management before disasters happen in
communities.
Last Congress, we heard from stakeholders, including practitioners
working with communities and families. We learned about:
Barriers to underserved communities and families
participating in flood mitigation programs,
The benefits of expanding the Community Rating System to
help communities reduce local flood risk,
The importance of helping communities and property owners
to understand their risk--both through improving mapping and
other risk communications, and through disclosure of flood
hazards to prospective owners and tenants, and
The importance of building State and local capacity to
carry out our floodplain management and mitigation programs,
especially for small and rural communities.
We also heard FEMA's recommendations for strengthening the program,
including forgiving the overhang of debt from previous disasters and
providing means-tested assistance to help more families afford
insurance.
I am interested in hearing our witnesses' recommendations for ways
we can help strengthen the NFIP so that it can serve all communities,
including rural, underserved, and Tribal communities, and how flood
resilience is part of a holistic community policy.
It is no secret that NFIP reauthorization has proven to be a
challenge.
It's a complex program, with multiple goals, with implications for
many of the things people care about most--their homes and their
communities.
However, I believe it is possible for us to come together to
reauthorize and improve this program.
I look forward to working with Ranking Member Scott and the Members
of the Committee to strengthen the NFIP and the country's comprehensive
approach to mitigating flood risk through a long-term reauthorization
bill this Congress.
______
PREPARED STATEMENT OF SENATOR TIM SCOTT
Thank you all for joining us, I appreciate both the witnesses and
the one here with us virtually talking about such an important
conversation. I'll certainly say as a lifelong South Carolinian, I
understand the real loss and impact that flooding has on our
communities, because I've lived through them.
In 2016, after Hurricane Matthew, I remember the devastation in the
small town called Nichols, South Carolina, where the devastation of the
storm was hard to watch. Even days after the storm was gone, the water
was still above my knees as we looked for ways to help rebuild that
community. Just 2 years later, Hurricane Florence came through the same
town, washing away lives, homes, and businesses. Eight people were lost
that year in South Carolina due to the storm.
When I think about these experiences, the one word that does come
to mind is the word ``resiliency.'' It's really important that our
communities are resilient. And I will say without any question, the
people of Nichols, South Carolina, and so many of the other hard hit
areas have proven to be resilient people. If the homes and the
infrastructure built in these communities had the structural resilience
to match the spiritual resilience of these residents, we wouldn't see
the same kind of devastation that we do in the wake of major storms
like Matthew and Florence.
Before coming to Washington, I spent a few years in the insurance
business--about 23 of those years in the insurance business and more
than half of that time with selling flood insurance. And I will say my
experience goes back to Hurricane Hugo that devastated the Charleston
area in a way that very few things ever [have]. And when you understand
and appreciate the necessity of programs that work, you certainly do
have an affinity and appreciation for the National Flood Insurance
Program and its mission of helping out in some of the most challenging
situations that we see.
You couple that with FEMA, you understand as a community starts to
rebuild, the importance of having a Federal program that works. My
concern is that when you look at the National Flood Insurance Program,
the one thing we have to say is that it hasn't worked the way that it
was intended to. If you look at the fact that in June 2017, we canceled
$16 billion of its debt, and yet NFIP still owes more than $20 billion
to the taxpayers.
That, to me, is a problem. And I think we can't just look through
the prism of ``hopefully the Federal Government shows up when there is
a need.'' At the same time, we have to make sure that the Federal
Government, the programs within the Government are as efficient and as
effective as humanly possible to meet the broader needs of the people.
One of the challenges I've often said is three States: Louisiana,
South Carolina, and Florida, represent a disproportionate share of the
premiums that flow into the National Flood Insurance Program. But when
you look at the flood occurrences and incidents around the country,
what you'll come to conclude is that flooding is
impacting communities in Ohio, devastating communities in Iowa, and yet
40 percent of the premium that funds the program comes from three
specific States. That means that the formula that we're using to
calculate who should be paying into the system is insufficient and
certainly leaves the program underfunded.
We have to reexamine the theory of--in my perspective, Mr.
Chairman--not just flood insurance, but catastrophic occurrences that
are happening more and more across the country, for us to understand
and appreciate the necessity of what we're talking about. You can't do
it in a silo of just flood insurance. We have to have a broader
conversation about catastrophic occurrences because taxpayers are
subsidizing wind activities, tornadoes, and other challenges, as well
as flood activity. So when you see it from a panoramic view, you come
to a very different understanding and appreciation for the weight of
catastrophic occurrences on the American people.
Planning for that is something that we have just done poorly
because we continue to see flood insurance and flood challenges, a
National Flood Insurance Program as a coastal program, and the rest of
the interior may not have to worry about it. But the truth of it is
that we're seeing so many incredibly expensive incidents in the
interior of our country, and not simply on our coast[s].
And that reinforces the importance of us having this conversation
today and thinking about not only where they happen, but where the most
vulnerable communities are least prepared to respond to the challenges.
One of the areas where I think we could spend more time in disaster
management is the area of prevention. That's why I'm reintroducing my
bipartisan legislation, the Repeatedly Flooded Communities Preparation
Act. This legislation seeks to provide more resources to those areas of
our Nation that face consistent and continuous flooding, breaking the
costly cycle of repeated flooding and rebuilding is an ounce of
prevention, and it certainly is worth a pound of cure.
Too often, both our conversations about flooding and the Federal
spending meant to address [it] is focused on large cities on the
coast[s] where the costs and disasters are high. But we can't forget
about the small towns and the rural communities far upriver [that]
oftentimes have even higher risks, as I just described a few minutes
ago. Most of you are aware of my work on Opportunity Zones, where
economic development incentives are targeted to communities who need it
most. Recent changes to better target Federal mitigation efforts to
underserved communities will have similar positive impacts.
Without an actuarially sound insurance program--and that's the
challenge of premium insufficiency, is it's not actuarially sound
because we have not understood the risk as it is, as opposed to the way
that we think it should be--this program will never be financially
solid. Without better mitigation and mapping costs for the insurance
side of the program will continue to grow.
That is why a comprehensive reform to the NFIP is essential, and
doing so is the only way to ensure that flood insurance can remain
affordable, accessible and most importantly, helpful to policyholders
when they need it the most. Let me just finish on that one thought
there. We look at the FEMA disaster recovery, I think the maximum
amount is around $39,000 that people are able to be eligible for,
whether you have flood insurance or not. We have to figure out how to
make sure that Americans who need the coverage have the coverage, which
I believe will reduce the burden that we're putting on the NFIP. We
have to understand the risk as it is, and once again, not as we wish it
was.
______
PREPARED STATEMENT OF CAROLYN KOUSKY
Associate Vice President for Economics and Policy, Environmental
Defense Fund
May 2, 2023
Good morning. I would like to thank Chairman Brown, Ranking Member
Scott, and the esteemed Members of the Committee for the invitation to
speak to you today. I would also like to thank this Committee for its
support and attention to the National Flood Insurance Program (NFIP)
and their focus on increasing the resilience of our communities. I am
pleased to have the opportunity to testify today and share my
perspectives on policy priorities for the program.
I am the Associate Vice President for Economics and Policy at the
Environmental Defense Fund. I have been researching the NFIP for over
15 years. This has included studies on the mandatory purchase
requirement, drivers of demand, design of increased cost of compliance
coverage, adverse selection in the program, pricing, and the private
flood insurance market. I am also the author of the book Understanding
Disaster Insurance: New Tools for a More Resilient Future. My research
on this program, and that of the broader research community, informs my
testimony today.
The Important Role of Flood Insurance in Recovery
Severe floods, like other natural disasters, impose enormous and
wide-ranging costs on households. These include repairing property
damage to homes, possessions, and vehicles, as well as the cost of
emergency and preparedness supplies, evacuation expenses, temporary
living expenses if people have to leave their homes, higher food
expenses if families need to eat out more, potential health impacts or
additional care for vulnerable family members, and the costs of
cleaning up debris generated from the disaster. If power is lost,
people may need to purchase generators and fuel; if the transportation
network is down, they may incur higher commuting costs; and if
businesses are impacted, they may lose income at the same time they
face an increase in expenditures.
How do households cover these disaster-related costs? Most
households have insufficient liquid savings to cover expenses outright.
This is more severe for people with lower incomes and people of color;
research has shown these populations have lower levels of emergency
savings, due to systemic inequalities and limited access to resources.
\1\ Disaster loans are often a first line of defense provided to those
impacted by disaster, but for lower-income households, additional debt
is more likely to make their financial situation more precarious and
limited repayment ability will mean many lower-income households will
be completely locked out of access to credit altogether. Federal
disaster aid is too limited or too delayed or creates unnecessary
burdens for households. \2\
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\1\ Ratcliffe, C., B. Middlewood, M. Knoll, M. Davies, and G.
Guillory (2022). ``Emergency Savings and Financial Security: Insights
From the Making Ends Meet Survey and Consumer Credit Panel''.
Washington, DC: Consumer Financial Protection Bureau.
\2\ May, R. (2020). ``Accessing Disaster Recovery Assistance
Requires a Map and a Compass''. Wharton Risk Management and Decision
Processes Center, University of Pennsylvania. Online at: https://
riskcenter.wharton.upenn.edu/labs/recoveryassistancerequiresamap/.
---------------------------------------------------------------------------
With limited other options, insurance plays a critical role in
getting households financial resources they need to rebuild their homes
and replace damaged possessions. This is why insurance is a necessary
component of securing financial resilience to disasters. In ongoing
research, for example, a colleague and I find that after a hurricane,
households with insurance are less likely to report high financial
burdens both three months and a year after the disaster and are less
likely to report having unmet funding needs. \3\ In the same paper, we
find that widespread take-up of flood insurance improves local economic
recovery by increasing visitations to local commercial establishments.
This echoes other research by colleagues, which have similar findings
that insurance improves recovery \4\ and that lack of flood insurance
can widen inequality post-disaster. \5\
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\3\ You, X. and Kousky, C. (2023). ``Improving Household and
Community Disaster Recovery: Evidence on the Role of Insurance''. EDF
Economics Discussion Paper 23-01. Available at SSRN: https://ssrn.com/
abstract=4365715 or http://dx.doi.org/10.2139/ssrn.4365715.
\4\ For example: Turnham, J., K. Burnett, C. Martin, T. McCall, R.
Juras, and J. Spader (2011). ``Housing Recovery on the Gulf Coast,
Phase II: Results of Property Owner Survey in Louisiana, Mississippi,
and Texas''. Washington, DC: U.S. Department of Housing and Urban
Development, Office of Policy Development and Research. More studies
reviewed in: Kousky, C. (2019). ``The Role of Natural Disaster
Insurance in Recovery and Risk Reduction''. Annual Review of Resource
Economics 11(3).
\5\ Rhodes, A., and M. Besbris (2022). ``Soaking the Middle Class:
Suburban Inequality and Recovery from Disaster''. New York: Russell
Sage Foundation.
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For over 50 years, the National Flood Insurance Program has been
providing this necessary coverage for millions of households and
businesses around the country. That said, we still face the challenge
that many at-risk households are uninsured against flooding. FEMA
estimates that on average nationwide, only about 35 percent of
households in Special Flood Hazard Areas have flood insurance, while
less than 2 percent of those outside this area have flood insurance.
\6\ There is, however, high regional variation, with take-up rates much
higher in communities along the Gulf and Atlantic coasts. \7\ But, as
flood after flood reminds us, far too many Americans at risk do not
have the necessary flood insurance coverage. This is driven by many
factors, such as lack of public and accessible information on flood
risk and the potential damages flooding can cause. In addition, those
who need insurance the most are often simply unable to afford it.
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\6\ Federal Emergency Management Agency (FEMA). 2018. ``An
Affordability Framework for the National Flood Insurance Program''.
Washington, DC, April 17.
\7\ Kousky, C. (2018). ``Financing Flood Losses: A Discussion of
the National Flood Insurance Program''. Risk Management and Insurance
Review. 21(1): 11-32.
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Those least able to afford insurance have greater need of financial
protection since they have little access to other sources of recovery
dollars. Without the resources to recover and obtain safe housing
again, households must often cover recovery expenses in ways that have
negative long-term impacts or limit their ability to build wealth, such
as deferring medical expenses, falling behind on bills, or draining
retirement savings. Research finds that after suffering flood or
disaster damage, credit score declines, mortgage delinquencies, and
bankruptcies are more likely for households that are financially
constrained as well as those who live in a community of color. \8\ The
need for more inclusive insurance is an important policy topic for
other disaster and property insurance beyond flooding, as well. \9\
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\8\ Ratcliffe, C., W. Congdon, T. Teles, A. Stanczyk, and C.
Martin (2020). ``From Bad to Worse: Natural Disasters and Financial
Health''. Journal of Housing Research 29 (sup1): S25-S53; Billings,
S.B., E.A. Gallagher, and L. Ricketts (2022). ``Let the Rich Be
Flooded: The Distribution of Financial Aid and Distress After Hurricane
Harvey''. Journal of Financial Economics 146 (2): 797-819.
\9\ Kousky, C., and K. French (2023). ``Inclusive Insurance for
Climate-Related Disasters: A Roadmap for the United States''. Boston,
Ceres: January.
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The Need To Lower Risk
Insurance and risk reduction need to be viewed as complements. When
the underlying risk is lowered, insurance becomes more affordable. Over
its long history, FEMA and the NFIP have invested in efforts to lower
flood risk and these efforts have paid dividends around the country.
The NFIP minimum floodplain regulations provide communities baseline
requirements to support less risky development, but updates to these
requirements are now needed to reflect modern best practices and the
realities of changing conditions. Grants to mitigate impacts to
individual properties have reduced damages in many communities. And the
Community Rating System, a program designed to reward communities that
take actions to better manage flood risk, has led to lower flood claims
and lower overall losses in participating communities, \10\ although
some improvements could make it more widely accessible and help
communities focus on the most impactful interventions.
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\10\ Gourevitch, J.D., and N. Pinter (2023). ``Federal Incentives
for Community-Level Climate Adaptation: An Evaluation of FEMA's
Community Rating System''. Environmental Research Letters 18(3):
034037; Highfield, W.E., and S.D. Brody (2017). ``Determining the
Effects of the FEMA Community Rating System Program on Flood Losses in
the United States''. International Journal of Disaster Risk Reduction
21: 396-404; Kousky, C. and E. Michel-Kerjan (2015). ``Examining Flood
Insurance Claims in the United States''. Journal of Risk and Insurance
84(3): 819-850.
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Beyond the NFIP, at this moment, there are more Federal dollars for
reducing the losses from extreme climate events than have ever been
previously available. This includes $3.5 billion to the Flood
Mitigation Assistance Program from the Infrastructure Investment and
Jobs Act, $2.3 billion in FY22 for the new Building Resilient
Infrastructure in Communities (BRIC) grant program, $0.5 billion to the
new State revolving loan funds (Safeguarding Tomorrow through Ongoing
Risk Mitigation Act), as well as the $3.5 billion to the Hazard
Mitigation Grant Program, due to the 4 percent set aside from the
COVID-19 declarations. In addition, funding from the Community
Development Block Grant-Disaster Relief (and CDBG-Mitigation) program,
when authorized, can provide substantial funds for risk reduction. \11\
These dollars are creating important opportunities for States and local
governments to invest in flood mitigation that will improve household
and community resilience.
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\11\ For more on this program see the testimony of Carlos E.
Martin before the Committee on Banking, Housing, and Urban Affairs,
United States Senate, on December 15, 2021.
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With such funds available, attention now needs to turn to helping
communities access these funds, along with providing support for
developing cost-effective, impactful, and equitable resilience
projects. This is especially true for communities with fewer resources
to navigate the sometimes challenging process of securing Federal grant
funds.
While this new funding is substantial, it is still far below
demand. For instance, in 2022, FEMA received requests for the BRIC
funding that were four times greater than the amount available to
allocate, despite a record amount of funds to award. As the risk of
climate extremes continues to grow, so will the need. There is,
therefore, still more to do to help lower flood risk and the NFIP
should play a key role, as it has throughout its long history, in those
efforts. There are multiple places where the program could do more to
support flood risk reduction.
Several mitigation options for properties are quite expensive and
policyholders simply do not have the necessary funds for such changes.
When a property is damaged by a flood, it should be seen as an
opportunity to build back in a way that lowers future damages. To
support this, the NFIP could make greater funding available at the time
of rebuilding to pay for investments in risk reduction and couple this,
perhaps in partnership with local organizations, with action-oriented
advice for policyholders.
Currently, NFIP policies have Increased Cost of Compliance (ICC)
coverage, which provides up to $30,000 when a property is substantially
or repetitively damaged to bring it into compliance with current
floodplain regulations (although subject to the overall cap on NFIP
coverage of $250,000 for residential policies). \12\ While important,
this program is underutilized by policyholders and does not go far
enough in supporting investments in risk reduction at the time of
rebuilding. \13\ The mitigation measures it supports include elevation,
relocation, demolition, and floodproofing for nonresidential buildings.
All of these are very expensive changes and ICC is typically
insufficient. Higher ICC payouts could help cover the costs of these
more expensive mitigation investments, but this requires a
determination as to how to pay for these higher ICC payouts: should it
remain an insurance coverage or be treated as a grant coupled to an
NFIP policy? If the former, the NFIP would have to charge a higher
premium for ICC coverage than it does today in order to cover the cost
of higher payouts. In the latter case, the extra premium could be paid
for with Federal funds, treating ICC more like a grant, and sparing
policyholders the higher premium costs necessary to access greater
post-flood dollars for resilient rebuilding.
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\12\ Residential policies can only be insured up to $250,000
through the NFIP. ICC payouts are also currently subject to that cap
(so if someone received a claims payout, for example, of $240,000, they
would only be eligible for $10,000 in ICC).
\13\ Kousky, C., and B. Lingle (2017). ``The NFIP's Increased Cost
of Compliance Coverage''. Wharton Risk Center Issue Brief. University
of Pennsylvania, Philadelphia: Summer.
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Second, the NFIP continues to have a group of highly risky
properties that have seen repeated flooding--aptly named repetitive
loss properties. They make up only a small share of policies, but a
larger, and disproportionate, share of claims. From 1978 to 2015, just
160,000 repetitive loss properties (about 3 percent of all policies)
received $9 billion, or roughly 25 percent of all claims payments. \14\
Many observers of the program have argued for more aggressive
mitigation of these properties. FEMA has suggested that Congress allow
the program to stop insuring them altogether after a certain number of
losses. Certainly, a private firm would never continue paying to
rebuild a home that was destroyed time and time again. FEMA's proposal
to stop insuring repetitive loss properties should be coupled to
dedicated grant funds for mitigation of these properties to enable them
to qualify for continued coverage or buyout funds for those homeowners
ready to relocate somewhere safer.
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\14\ See: NFIP (2017). ``Developing a Repetitive Loss Area
Analysis for Credit under Activity 510 (Floodplain Management Planning)
of the Community Rating System'', online at: https://crsresources.org/
files/500/rlaa-guide-2017.pdf.
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Since the costs of continued occupancy are greater than the costs
of relocation for these properties, they are often targeted for buyouts
through certain mitigation grant programs. These programs provide
Federal grant dollars for State and local governments to purchase risky
properties and return them to open space in perpetuity. Unfortunately,
these programs are too often missing important opportunities and
wasting financial resources. Federal buyout dollars can take too long
to reach homeowners ready to move after a damaging flood. \15\
Households--especially those of limited means--cannot wait for years
for the buyout process to be undertaken. Floodplain managers have
observed that at times, households may begin the rebuilding process to
make their home safe for habitation, often using partial or full flood
insurance payouts, since they need a safe place to live immediately,
only to have the home demolished later in a buyout.
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\15\ Wiley, H.J.P., and C. Kousky (2020). ``Speeding Up Post-
Disaster Housing Buyouts''. Solutions 11(3).
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A critical reform would make some Federal buyout dollars available
immediately after a flood or allow for local reimbursement of
floodplain buyouts for repetitive loss properties. But the Federal
delay is only one contributing factor to the often long timeframes for
buyouts. Another source of delay comes from the administrative tasks
required for local implementation of buyouts. These can be reduced
through predisaster evaluation and prioritization of where buyouts will
occur, which properties are eligible, and conducting the necessary
appraisals and approvals. To encourage local communities with high-risk
areas to complete this necessary predisaster work, the expedited or
reimbursed Federal buyout funds could be tied to demonstration of a
predisaster buyout planning process, perhaps piloted in repetitive loss
areas. In addition, support could be made available for restoration of
these properties to provide environmental benefits, including natural
flood protection.
While reforms such as these are needed across all communities, the
Committee should also consider greater efforts, building on FEMA's
current priority to support greater equity in its programs, to direct
resources for both household and community level investments in flood
mitigation to lower-income communities at high risk of floods. This
will also require increases in technical support and easing the process
for under-resourced communities to access Federal dollars. As noted
earlier, this could help lower overall risk and thus also bring down
the costs of insurance for those struggling to afford coverage.
Finally, the program could provide greater incentives and
information to support investments in low-cost mitigation options,
since many homeowners simply do not have the funds to pay for high-cost
mitigation, such as elevation, or the desire, funds, or ability to
relocate. This includes actions such as improving grading around the
home; using flood-resistant materials in basements or lower floors;
elevating mechanicals, utilities, and appliances; reducing impervious
surfaces around the home; installing flood vents or sump pumps; and
sealing foundation and basement walls. \16\ According to FEMA,
elevating machinery and equipment will now be given credit in premiums
under Risk Rating 2.0. The only other two mitigation efforts receiving
a premium credit are installing flood openings and elevation. While
this is a good start, the ICC coverage could also be revised to allow
the funds to be used for less costly mitigation, such as those just
listed, even if unrelated to current building codes.
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\16\ For more information, see: https://www.fema.gov/sites/
default/files/documents/fema_protect-your-home-from-flooding-
brochure_2020.pdf.
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Improving the Fiscal Soundness of the Program
Insurance is predicated on the idea of risk pooling. When
independent losses are grouped together, the aggregate loss is stable
and well-predicted. Natural disasters, however, present a challenge.
Losses from disasters are correlated--entire communities are hit
simultaneously--and events themselves can be very severe. This
possibility for extreme losses creates annual losses that are very
spiky and can fluctuate wildly from one year to the next. To stay
solvent, insurers must have access to enormous sums of capital to cover
high loss years.
The NFIP was originally designed to borrow from the U.S. Treasury
when it faced losses that exceeded retained funds and premium revenues.
This worked when the losses were never catastrophic. Hurricane Katrina
and the 2005 hurricane season, however, disrupted this model and
plunged the program into massive debt. Hurricanes in subsequent years
only further added to the debt, including Hurricane Harvey, after which
Congress forgave $16 billion. Still, with such severe losses and
inadequate financing, the debt today stands at $20.5 billion.
Debt is not a typical part of private insurance operations.
Insurance companies collect most of their revenue in advance, before
having to pay claims and expenses. While the NFIP is a public sector
program, and thus financed quite differently, this large debt is
unsustainable. FEMA now pays almost $1 million in interest daily; the
program has paid over $5.7 billion in interest since 2005. \17\ The
Union of Concerned Scientists notes that the program pays more in
interest than it does for flood mapping and that interest payments are
the third largest NFIP activity by cost. \18\ This is paid for entirely
out of premium revenue, placing an unnecessary burden on policyholders
and the program itself.
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\17\ https://www.fema.gov/case-study/rising-interest-expenses
\18\ Udvardy, S. (2021). ``Three Reasons the House Reconciliation
Bill Is Good News for Flood Resilience and Communities''. The Union of
Concerned Scientists: September 20.
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All observers, including FEMA, \19\ the GAO, \20\ and others, have
stressed that the NFIP will never be able to repay this debt. The
program was simply never designed to be able to handle the catastrophic
loss years it has faced. And the percentage of NFIP revenue that is
consumed by debt services could increase from higher interest rates.
There is not a path forward to repay this debt based on premiums
without imposing untenable financial burdens on policyholders and
undermining the ability of the program to pay claims. As such, all
analysts of the program believe this debt must be forgiven. As David
Maurstad, the Assistant Administrator for the Federal Insurance
Directorate and Senior Executive of the NFIP said in a hearing last
Friday: ``as currently structured, the program is burdened with
interest expense and unable to pay this debt back in full.''
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\19\ https://www.fema.gov/case-study/rising-interest-expenses
\20\ GAO (2017). ``Comprehensive Reform Could Improve Solvency and
Enhance Resilience''. U.S. Government Accountability Office,
Washington, DC: April 27.
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Forgiving the debt would allow the program to begin fresh with a
new approach to fiscal soundness. FEMA has suggested additional reforms
to contribute to this broader goal. One has already been undertaken,
which is aligning prices with risk. GAO \21\ and other stakeholders
have repeatedly raised concerns, especially in the years after
Hurricane Karina, that the NFIP's approach to rate-setting failed to
reflect risk at the property level, instead including multiple cross-
subsidies and discounts that led to perverse incentives. In response,
over many years, FEMA modernized its approach to pricing, the result of
which is Risk Rating 2.0. This new approach reduces cross-subsidies
across flood zones and eliminates price ``cliffs,'' where, in the past,
two properties at similar risk could have faced substantially different
premiums if a flood zone boundary crossed between them. It also has
undone a regressive cross-subsidy where higher values homes were paying
too little and lower value homes paying too much.
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\21\ GAO (2008). ``FEMA's Rate-Setting Process Warrants
Attention''. U.S. Government Accountability Office, Washington, DC:
December 1.
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Risk Rating 2.0, however, did not include any type of means-tested
assistance program, which is needed, but would require congressional
authorization. Disaster insurance, including flood insurance, when
risk-based, can be very expensive. \22\ Even with the NFIP only
managing to a one-in-twenty year event, far lower than a private sector
firm, prices in areas at high risk of flooding are going to be
expensive, reflecting that risk. At the launch of Risk Rating 2.0, FEMA
noted that just under a quarter of existing policyholders would see
rate decreases and two-thirds would see premium increases of less than
$10 per month. \23\ These numbers, however, were not full-risk rates,
which are being phased in over time, but only the immediate premium
changes. The program has not made information available on property-
level full-risk rates, but did last week release aggregate information
on the average full-risk premiums for ZIP Codes, counties, and States.
For a little more than a quarter of U.S. counties, the average full-
risk premium is greater than the average current cost of insurance by
100 percent or more. Properties that have maintained insurance are on a
glidepath to paying these higher rates, so they will not see the full
cost for years to come, following a congressional cap on rate increases
of 18 percent per year. But many households already cannot afford the
current cost of flood insurance and the number struggling with flood
insurance costs will continue to grow as the rates rise. For those not
mandated to purchase flood coverage, many will drop their flood
coverage.
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\22\ Kousky, C. (2022). Understanding Disaster Insurance: New
Tools for a More Resilient Future. Washington, DC: Island Press.
\23\ https://www.fema.gov/flood-insurance/risk-rating
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As has been noted by FEMA, \24\ the National Academy of Sciences,
\25\ RAND, \26\ researchers, \27\ and many other stakeholders for at
least a decade, Congress should authorize a means-tested assistance
program to help low- and moderate-income households with the costs of
flood insurance. Assistant Administrator Maurstad also stressed this
again in his testimony last week. There has been substantial
investigation into how to design such a program from the aforementioned
groups. It is time to use that combined research to adopt and implement
such a program. It should be supported, not by cross-subsidies within
the program, but through taxpayer dollars. This is an important safety
net, akin to other Federal safety net programs for those most in need.
In addition, the affordability program should be scaled, so that the
amount of support phases out as income increases. And it should be
available to anyone--current or future policyholder--who wishes to
purchase flood insurance.
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\24\ FEMA. (2018). ``An Affordability Framework for the National
Flood Insurance Program''. Department of Homeland Security, Federal
Emergency Management Agency.
\25\ National Research Council. (2015). Affordability of National
Flood Insurance Premiums: Report 1. National Academies Press.
\26\ Dixon, L., Clancy, N., et al. (2017). ``The Cost and
Affordability of Flood Insurance in New York City: Economic Impacts of
Rising Premiums and Policy Options for One- to Four-Family Homes''.
RAND Corporation.
\27\ Kousky, C. and H. Kunreuther (2014). ``Addressing
Affordability in the National Flood Insurance Program''. Journal of
Extreme Events (1)1: Article ID 1450001; Miller, B., Dixon, L. and N.
Clancy (2019). ``Reasonable and Risk-Based? Replacing NFIP Generally
Subsidized Rates with a Means-Tested Subsidy''. Southern Economics
Journal 85(4): 1180-1195.
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Private Vs. Public Flood Insurance
As everyone on this Committee knows, the NFIP was established over
50-years ago in response to a lack of available flood coverage in the
private sector. Floods are not the only peril for which the public
sector has had to step in with support. Every State exposed to
hurricanes has a so-called wind pool or beach plan for those who cannot
find or afford wind coverage in the private market. California has the
California Earthquake Authority, as well as their FAIR (Fair Access to
Insurance Requirements) program, which is now writing increasing
numbers of wildfire insurance policies. Federally, we have the
Terrorism Risk and Insurance Program to backstop commercial terrorism
coverage.
These programs were typically put into place when a severe event
made clear that there was insufficient availability or affordability
from the private sector. The fact that losses can be so severe, and
impact so many people simultaneously, means that some of the underlying
principles of risk pooling, on which insurance is based, fail to hold
for catastrophic risks. This makes disaster insurance fundamentally
more expensive than nondisaster insurance. At times, there may not be
any price at which insurance companies can profitably offer disaster
coverage that consumers are able or willing to pay. These breakdowns in
insurance markets, often witnessed after disasters, have led to the
creation of many of the public sector programs just mentioned. This is
also true internationally, where there is even greater variation in how
such programs are designed.
In the case of flooding, these difficult insurance dynamics for the
private market, coupled with lack of information and understanding of
flood risk on the part of both consumers and insurers, as well as
ongoing concerns about adverse selection, led the NFIP to be the
dominant source of flood insurance in the United States for decades.
More recently, advances in data and modeling have improved
understanding of the flood hazard and some private insurers have
started to offer flood policies. According to data from the end of 2021
from the National Association of Insurance Commissioners, \28\ at that
time, about 9.4 percent of residential, first-dollar flood policies
(those not written exclusive in excess of the NFIP coverage cap) were
with the private sector.
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\28\ Data online at: https://tableau.naic.org/views/
PFloodDataCall_16057353537510/
PurposeandExplanation?%3Aembed=y&%3AisGuestRedirectFromVizportal=y.
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While private flood policies can provide consumers with more
options, which could include better prices or more expansive coverage,
it is unlikely the private sector will ever be able to provide flood
insurance for a large share of those at risk. This is due to the
difficulty just discussed with insuring catastrophic risks at a price
point people can afford to pay. This will only be exacerbated as
climate change and continued development increase flood risk in many
places around the country. This could make private flood insurance
simply unaffordable to many households at risk. And since flood losses
can be catastrophic and threaten insurer solvency, many insurers simply
do not want to take the risk onto their books at any feasible price
point. Indeed, we are seeing private insurers pull back from all
climate perils that are now increasing, such as insurers in Louisiana
and Florida reducing their willingness to offer homeowner's insurance
and some in California pulling back in the high wildfire risk areas of
the State. As such, the NFIP will continue to play a dominant role in
providing full indemnity flood insurance for the foreseeable future.
That said, all of the various public disaster insurance programs--
here and around the world--struggle with the basic question of who
should pay for disaster losses. Some other countries take a
``solidarity'' approach to pricing disaster insurance, charging one
flat fee to all residents (perhaps varying by property type or coverage
limit). They make disaster insurance universal and compulsory. The
United States has shied away from embracing a solidarity approach to
pricing, but some stakeholders also eschew a fully market-based
approach of pricing each property according to its individualized risk
level, as this can be quite high in flood-prone locations. Some
stakeholders advocate that pricing only on risk levels could encourage
safer building and better decisions about where to build. And there are
those who believe that if someone chooses to live in a risky area, it
is their responsibility to shoulder the costs of that decision. But we
also have households trapped in risky locations, in need of support to
secure risk reduction and financial protection against disaster losses.
In practice, most of the disaster insurance programs in the United
States have cross-subsides (if sometimes implicit or hidden) that keep
costs lower for those in high-risk areas. This is true for several of
the State wind pools and was also historically true for the NFIP. None
of our programs yet, however, provide assistance with premiums based on
ability-to-pay.
Addressing Climate Change
Flooding is the costliest natural disaster, and the risk is
escalating in many places due to the combined effects of climate
change, development, and land use decisions. Sea level rise has already
led to an increased probability of coastal flooding, which will
continue, and is projected to cause higher flood damages in the coming
years. \29\ Climate-induced intensification of rainfall is also
projected to increase flooding in certain parts of the United States
and this, in turn, could escalate flood damages. \30\ It is not climate
change alone, however, that is driving up flood risk. Our land use and
development decisions have also, at times, increased flood risk.
Decisions such as reducing impervious surface area, eliminating natural
systems, such as wetlands, that can store floodwaters, continuing to
build in areas known to be at high flood-risk, and failing to build in
a way that is mindful of escalating risk, all worsen flooding.
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\29\ Sweet, W.V., and J. Park (2014). ``From the Extreme to the
Mean: Acceleration and Tipping Points of Coastal Inundation From Sea
Level Rise''. Earth's Future 2(12): 579-600; Neumann, J.E., K. Emanuel,
S. Ravela, L. Ludwig, P. Kirshen, K. Bosma, and J. Martinich (2015).
``Joint Effects of Storm Surge and Sea-level Rise on U.S. Coasts: New
Economic Estimates of Impacts, Adaptation, and Benefits of Mitigation
Policy''. Climatic Change 129 (1-2): 337-349; Garner, A.J., M.E. Mann,
K.A. Emanuel, R.E. Kopp, N. Lin, R.B. Alley, B.P. Horton, R.M. DeConto,
J.P. Donnelly, and D. Pollard (2017). ``Impact of Climate Change on New
York City's Coastal Flood Hazard: Increasing Flood Heights From the
Preindustrial to 2300 CE''. Proceedings of the National Academy of
Sciences 114(45): 11861-11866.
\30\ Wobus, C., M. Lawson, R. Jones, J. Smith, and J. Martinich
(2013). ``Estimating Monetary Damages From Flooding in the United
States Under a Changing Climate''. Journal of Flood Risk Management
7(3): 217-229; Mallakpour, I., and G. Villarini (2015). ``The Changing
Nature of Flooding Across the Central United States''. Nature Climate
Change 5(March): 250-254; Prein, A.F., C. Liu, K. Ikeda, S.B. Trier,
R.M. Rasmussen, G.J. Holland and M.P. Clark (2017). ``Increased
Rainfall Volume From Future Convective Storms in the U.S.''. Nature
Climate Change 7(12): 880-884.
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As climate change continues to intensify flood risk around the
country, the costs of insurance will necessarily need to increase as
well, absent subsidies to cover the growing risk. When many
policyholders still are not paying rates adequate to today's risk--and
many unable to afford the rates required for today's risk--this will
create a growing challenge for the program.
As noted earlier, the best way to address growing risk is to reduce
it--not simply transfer it. This requires changing our land use and
building practices in areas of increasing flood risk. As discussed
previously, Congress has appropriated increased funds for such efforts,
but more is needed to support climate adaptation. This should begin
with a better understanding of future risks. The NFIP could provide
information on future flood risks to communities around the country.
The current flood risk maps are inadequate tools of risk communication.
While the Special Flood Hazard Area (SFHA) boundary is necessary for
enforcement of building codes and the mandatory purchase requirement,
this should not be the basis for our risk communication and our risk
disclosure laws.
We have the tools and data now to provide graduated risk
information at a property level across the country for today's risk, as
well as the risk in the future under different climate scenarios.
Before a community permits development or a family decides where to
live, they should have an understanding of how the frequency of
flooding might change, of the magnitude of those floods and their
financial implications, and of the full cost of insurance today,
including how it may change in the future. Right now, none of that
information is easily available, creating information failures that can
lead to poor decisions and information distortions in housing and
mortgage markets.
Of course, there is concern that for current homeowners in very
risky areas, this important information transparency could cause
economic harm by lowering the value of their home. Instead of
sacrificing transparency about risks, we need to make it easier for
current occupants of very high-risk properties to either mitigate their
risk to preserve property values or to accept a floodplain buyout and
maintain their financial position as risks escalate. This is true
across income levels, but financially and climate-vulnerable
communities will need additional help.
Conclusion
Flood insurance has a critical role to play in promoting resilience
by protecting households and businesses against negative financial
shocks, speeding disaster recovery, and lowering risks before a
disaster through financial incentives and after a disaster through
greater resources for resilient rebuilding. All households need access
to these benefits of insurance. This can be guaranteed by adoption of a
means-tested assistance program to help lower-income households with
the cost of flood insurance. In addition, as flood risk grows in the
coming years, risk reduction is going to become more important as a key
complement to insurance.
______
PREPARED STATEMENT OF ROY E. WRIGHT
President and CEO, Insurance Institute for Business and Home Safety
May 2, 2023
Members of the Committee, thank you for the opportunity to speak
with you today about flooding, mitigation, and resilience. My name is
Roy Wright, and I am President and CEO of the Insurance Institute for
Business and Home Safety (IBHS). IBHS is a 501(c)(3) organization,
enabled by the property insurance industry's investment, to conduct
building safety research that leads to real-world solutions for home
and business owners, helping to create more resilient communities.
Before joining IBHS, I served at the Federal Emergency Management
Agency (FEMA), where I was the Federal Insurance Administrator, the
chief executive of the National Flood Insurance Program (NFIP).
Complementing these insurance responsibilities, I led the agency's
Federal Insurance and Mitigation Administration and directed the
resilience programs addressing earthquake, fire, flood, and wind risks.
Severe weather disrupts lives, displaces families, and drives
financial loss. IBHS delivers top-tier science and translates it into
action so we can prevent avoidable suffering, strengthen our homes and
businesses, inform the insurance industry, and support thriving
communities. The perils we study at IBHS are part of the natural world
in which we live, but social and economic disasters occur when these
perils meet human populations that live or work in harm's way. To break
the cycle of destruction, it is essential to address all aspects of the
building performance chain: where you build, how you design and
construct, and how well you maintain and repair. As a building science
institute, IBHS focuses on the ways that weather behaves, what makes
homes and businesses vulnerable, and how our buildings can be more
resilient. We exist to help ensure that the places where people live,
learn, work, worship, and gather are safe, stable, and as strong as the
best science can equip them to be.
As noted, IBHS is enabled by the investment of our Members,
property insurers and reinsurers. The core perils studied at the IBHS
Research Center in Richburg, SC, are wind, wind-driven rain, hail, and
wildfire. A set of IBHS member companies also provide critical services
to the NFIP by writing and servicing NFIP flood insurance policies as
part of the Write Your Own program. IBHS Members that participate in
the Write Your Own program are proud to help bring flood insurance to
millions of Americans.
Today, drawing in part from my experiences at FEMA, I would like to
speak with you about flood. With generational investments from the
Inflation Reduction Act and the Infrastructure Investment and Jobs Act
putting significant funds into mitigation programs across the Federal
Government, the question is not whether more Federal funding is
needed--it is how we can spend those funds most wisely. Urban
communities experiencing coastal flooding make the news, but flooding
is a national--not regional--problem. Suburban and rural communities
across the Nation experience flooding, and many lack the expertise and
resources to address the risk or even seek out Federal aid. We can do
better by them. We can do better for them.
When we direct meaningful resources to the right projects in the
right communities, we can reduce flood risk and reduce the price of
flood insurance. To this end, I will speak to the role of mitigation in
FEMA's current approach to rating, Risk Rating 2.0; the most cost-
effective type of mitigation in the flood context; and the critical
role that the Community Disaster Resilience Zones Act can play in
guiding and prioritizing investments in flood mitigation.
First, however, let me address squarely the one before you now:
reauthorization. Nearly 1 year ago, on May 25, 2022, I testified the
following before the House Committee on Financial Services'
Subcommittee on Housing, Community Development, and Insurance: ``If the
work of reauthorization was easy, Congress would have passed a simple,
long-term re-authorization years ago.''
What was true 1 year ago is, sadly, still true today. Congress will
be wrapping up 7 years of reauthorization this fall. Unfortunately for
flood insurance consumers and those responsible for leading the
program, Congress has delivered those 7 years of reauthorization in 25
small chunks. A reasonable, multiyear reauthorization would be best for
the NFIP, best for the Write Your Own insurers that help make the
program function, and, most importantly, best for the consumers that
depend on the NFIP for flood insurance. As I asserted 1 year ago,
Congress must pass long-term reauthorization that provides the program
with political stability.
Risk Rating 2.0
Risk Rating 2.0 aimed to make the NFIP's approach to setting flood
insurance premiums more closely resemble the methodologies used for
underwriting property risk across the covered perils insured in the
United States. We are now more than a year into the implementation of
Risk Rating 2.0, and this objective is being accomplished. The price of
flood insurance is being tied to the risk of the properties being
insured--just like other perils and other lines of insurance. (It is
good and right when a Government-run program follows the business and
actuarial practices used across the private-sector property insurance
industry.)
There Is No Greater Risk Communication Tool Than a Pricing Signal
Insurance is founded on the principle that price is driven by
risk--whether it is due to the higher replacement cost of the
structure, the escalated value of the home, or a more precise
understanding of the flood risk on a given parcel. Rates must be
grounded in sound actuarial practices. For some households, this means
reductions in the price of flood insurance. For others, those who live
in high-risk areas, policyholders are seeing rising prices that reflect
that risk. In a time when so many point to the effects of climate
change and its growing effect on severe weather's impact on our homes,
we cannot say that the flood risk is growing and then expect the price
of that risk to be cheaper. That does not compute.
Indeed, one of the intended goals of Risk Rating 2.0 is
transparency and communication--for FEMA to better communicate flood
risk realities. While the price of flood insurance is sending the
intended signal about rising flood risk across the Nation, more should
be done to help understand that risk--to peel back the veils and
identify what is driving risk and, crucially, how to mitigate it in
meaningful ways.
Floodplain managers, mitigation professionals, mitigation
service providers, and consumers need to understand what
specific factors are driving risk rate and how to bend that
risk curve down;
Builders, developers, and property owners with financial
resources must understand why they should invest in flood
resilience on the front end, so taxpayers do not have to foot
the bill on the back end; and
Policymakers, particularly at the local level, need to know
how to best direct limited resources that will make a
difference for their communities.
As with any major program update, the levers in the system likely
require adjustment during implementation. Within the individual home
and community mitigation domains, decision makers require more insight.
I encourage FEMA to provide tools so these stakeholders can understand
the most significant drivers of flood risk for specific properties and
communities, and how different mitigation actions, at the property or
community level, would lower the dial of risk and lead to reduced
pricing.
Cost-Effective Mitigation Investments
The built environment should be constructed to withstand the
natural perils we know to exist. Federal dollars spent on housing and
other structures should only be spent once--especially when we know how
to build in ways that withstand Mother Nature's fury. And make no
mistake: the solutions to make our homes, schools, businesses, and
other structures stronger, safer, and more resilient to severe weather
are not just knowable, they are known. Particularly at a time when
generational investments are making our housing and other
infrastructure greener, we must couple that with actions that will
ensure our new energy and water efficient structures are sufficiently
resilient to withstand all knowable risks.
IBHS is in the business of conducting building science research
that cannot be done elsewhere, identifying vulnerabilities in our homes
and businesses that are susceptible to severe weather. We have
identified solutions that make roofs stronger and homes better able to
withstand hurricanes, tornadoes, and severe convective storms. We have
developed a suite of mitigation actions that, when undertaken
collectively, meaningfully drives down risk of wildfire ignition. The
science on flood mitigation is more straightforward than the other
natural perils:
build higher and stronger (elevate),
get out of the way of the water (relocate), or
redirect the water (drainage and flood infrastructure
projects).
While the science is clear, the path to bring these solutions to
flood-prone homes and communities is far less clear.
Both elevation and buy-outs are expensive. Two recent initiatives
will help. First, the Safeguarding Tomorrow through Ongoing Risk
Mitigation (STORM) Act creates a mechanism by which States can create
revolving loan funds to help communities pay for expensive mitigation
actions. Second, FEMA's Swift Current Initiative explores incorporating
repetitive loss home acquisition programs (buyouts) into the disaster
recovery timeframe. This would be a hugely constructive step. FEMA buy-
outs of repetitive loss properties have historically taken years--often
culminating 5 years after the event, during which time there could be
multiple floods, multiple claims, and multiple disruptions to the
homeowner's life. It is neither good financial policy nor good people
policy. I am hopeful Swift Current will break this cycle of wasted
resources and disrupted lives.
While these advances are welcome, it remains the case that there is
no way to efficiently tackle meaningful flood mitigation actions at a
property-level. (Property-level mitigation actions are the first order
projects for wind and wildfire risk.) A single flood elevation or
relocation project changes the experiences for a single family, yet it
does not bend down the risk curve. Neighborhood-scale endeavors are
best. Elevate a full block of homes and the entire neighborhood returns
after the water recedes. Buy-out a couple blocks of a subdivision to
leave room for the water and the first responders don't need to
approach the area during the flood--there will be no one requiring
rescue.
Neighborhood-scale and infrastructure flood mitigation investments
work. When the punishing winds and associated storm surge of Hurricane
Ida barreled toward New Orleans, we held our collective breaths and
wondered: would the billions in flood infrastructure hold back the
water? The answer, thankfully, was yes. While too many homeowners
experienced devastating and preventable losses from Ida's winds, the
flood systems worked and homes in New Orleans were spared flood damage.
A final note on investing in flood resilience. Using mitigation
grants to reduce risk to existing structures and communities is
inherently reactive. Grants help us address previously made choices--
both where and how we built our homes and communities. We need to
become more proactive in our approach to flood resilience--this means
more and better planning, mapping, floodplain management standards, and
building codes.
We cannot keep putting structures in harm's way, and then question
why we keep having billion-dollar floods. Unless we drive down
tomorrow's risks today, we will stay trapped in a cycle of asking our
children to pay for our short-sighted choices.
Directing Resources Where They Are Most Needed
Even with the increased efficiencies of mitigation flood risk at a
community scale, there is still more need--more risk--than even the
generational investment of recent legislation can address. Hard choices
must be made.
Fortunately, we have a new tool to identify the communities that
have the highest risk and the highest need. I commend the 117th
Congress for passing the Community Disaster Resilience Zones (CDRZ)
Act, which established a statutory structure to identify and designate
those communities that are both most in need and at risk to natural
hazards including riverine and coastal flooding. It also authorizes the
President to provide CDRZ-designated communities with assistance and
funding for predisaster mitigation planning and projects to increase
resilience against the identified hazards.
According to sociological research, disabled, elderly, low income,
and other vulnerable people are less likely to prepare for disasters,
evacuate safely, avoid physical or psychological trauma, or recover
quickly and fully. Low-income residents account for a meaningful
percentage of the population in many coastal communities and other
areas that face flood risk, often living in the most vulnerable types
of housing. CDRZ will help to identify the communities that need
investment in community-scale mitigation actions the most, and help to
direct resources toward those communities.
To repeat a point I made earlier, there will never be enough
taxpayer money to pay for the flood mitigation we need in this country.
The power of the CDRZ approach is that it can facilitate a whole-of-
Government approach, bringing together the entire Federal family of
departments and agencies; State, local, Tribal, and territorial
entities; and--critically--the philanthropic and private sectors. In
implementing CDRZ, FEMA should bring together these partners to build
coalitions of stakeholders that will help the communities that need it
most, including rural and suburban communities that are too often left
behind when it comes to Federal mitigation grants.
CDRZ holds even more potential should Congress expand its usage to
encourage investment by the private sector. When private investment is
incentivized in these resilience zones, we will be less reliant on
Government grant funding to solve these problems.
In closing, I will return to insurance--the basis of today's
hearing. Informed deployment of community-scale mitigation investments
will do more than reduce the damage, disruption, and dislocation that
too often accompanies significant flooding. Just as low-income
households are least able to withstand the physical dangers of natural
disasters, they are likewise least able to withstand the associated
financial burdens--including the cost of flood insurance. Under Risk
Rating 2.0, flood mitigation investments made in communities should
drive down both flood risk and the cost of flood insurance. Together
with means-tested subsidies that provide financial assistance without
masking the real risk, community-scale flood investments can help
lessen the financial burden of flood insurance.
I thank you for the recognizing the importance of both physical and
financial resilience as Americans continue to contend with devastating
floods across our country. I appreciate the opportunity to share some
of our ideas with you today.
______
PREPARED STATEMENT OF PATTY HERNANDEZ
Executive Director, Headwaters Economics
May 2, 2023
Thank you, Chairman Brown, Ranking Member Scott, and Members of the
Committee.
I'm the Executive Director of Headwaters Economics, an independent
nonprofit organization based in Montana. \1\ We work on community
development, primarily with Government partners at the local, State,
and Federal levels.
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\1\ Headwaters Economics is an independent, nonprofit research
group whose mission is to improve community development and land
management decisions. https://headwatersecono
mics.org/
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I'm here today to share how mitigation efforts that start before
disasters strike can reduce burdens on Federal disaster programs and
make communities safer and more prosperous.
At Headwaters Economics, we run free technical assistance programs
that help rural communities reduce their flood \2\ and wildfire risks.
\3\ We've worked with more than 100 communities across the country, and
we've learned a lot about local needs and what successful disaster
mitigation looks like. We're seeing proof that mitigation works. It
yields cost savings for taxpayers and protects property and
livelihoods.
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\2\ FloodWise Community Assistance: https://
floodwise.headwaterseconomics.org/.
\3\ Community Planning Assistance for Wildfire: https://
cpaw.headwaterseconomics.org/.
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One of our partners is the rural community of Three Forks, Montana.
In 2021, new floodplain maps showed that its risk of catastrophic
flooding was much higher than previously understood. Most of Three
Forks was mapped as having high risk with a large part as floodway--
essentially a no-build zone. This community offers some of the last
remaining options for affordable housing in southwest Montana, and the
implications of the new flood maps were dire. Kelly Smith, the city
clerk and floodplain administrator, told me she was so devastated she
nearly left her job. The residents were rightfully scared of what would
happen to their insurance premiums and their property values. The
future of Three Forks--a strong rural community--was in jeopardy.
We partnered with Three Forks city staff and local elected
officials, Montana State agencies, and local engineers to find an
innovative infrastructure solution that could eliminate nearly all the
flood risk. The project creates a grass-lined channel that captures
flood waters and directs it back into the Jefferson River, preserving
the land for cattle grazing and protecting the town.
The cost of this project is $5 million--which is much less than the
expected $60 million in losses if a flood were to occur in Three Forks,
but still far out of reach for a rural community. After one failed
attempt at a FEMA BRIC grant, \4\ followed by technical assistance from
FEMA Region 8 staff, in 2022 the partnership successfully secured the
largest FEMA Flood Mitigation Assistance grant ever awarded to a
Montana community. \5\
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\4\ Flavelle C. 2021. ``Infrastructure Bill Makes First Major U.S.
Investment in Climate Resilience''. New York Times. https://
www.nytimes.com/2021/11/06/climate/infrastructure-bill-climate.html
\5\ FEMA. 2022. ``Montana: Mitigation Affordability, Climate
Resiliency and Economic Vitality for a Small Community Confluence
Project''. https://www.fema.gov/case-study/three-forks-city-montana
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This project will protect residents and businesses, preserve
workforce housing and agricultural land, and will help avoid future
NFIP claims. It's an excellent example of how flood mitigation
investments can reduce insurance burdens on homeowners and taxpayers.
But an important part of this story is what didn't work so well and
what we can do about it.
Communities like Three Forks have a hard time funding mitigation
before a disaster. Federal agencies have importantly directed more
resources to vulnerable communities recently, but rural and low-
capacity communities are at risk of being left behind. Affluent urban
communities are more than twice as likely to win mitigation grants than
their rural and Tribal counterparts. This is because large cities like
New York have experienced staff available to coordinate partnerships,
write grant proposals, and secure financial resources.
To better understand the challenges faced by rural communities,
Headwaters Economics developed the Rural Capacity Index, which measures
whether communities have the local government staff--like planners and
engineers--and other resources necessary to secure resources. \6\ Our
Rural Capacity Map shows that thousands of communities across America
lack the capacity required to access disaster mitigation funding. In
Montana alone, we found that 65 percent of communities don't have
adequate capacity to access Federal resilience funding. More than
three-quarters of communities in the Midwest have low capacity, and
more than half of communities in the Gulf, Southeast, and West have low
capacity.
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\6\ Headwaters Economics. 2022. ``A Rural Capacity Map''. https://
headwaterseconomics.org/equity/rural-capacity-map/
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Low-capacity communities may miss out on other important benefits
that come with mitigation, such as housing affordability. For example,
22 million Americans live in mobile and manufactured homes. These homes
are the largest source of unsubsidized affordable housing in the United
States. \7\ We found that one-in-seven mobile homes across the country
is in an area with high flood risk. \8\ When a disaster hits these
communities, as we are seeing more and more often, it can dramatically
erode the local housing supply, rents go up, homelessness increases,
and the disruption can last for years. \9\ Better access to mitigation
resources would allow communities to invest in more durable housing.
Mitigation can be a win for homeowners and renters alike, as well as
the builders and construction workers who make these projects a
reality.
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\7\ Consumer Financial Protection Bureau. 2021. ``Manufactured
Housing Finance: New Insights From the Home Mortgage Disclosure Act
Data''. https://files.consumerfinance.gov/f/documents/cfpb-
manufactured-housing-finance-new-insights-hmda-report-2021-05.pdf
\8\ Headwaters Economics. 2022. ``Mobile Home Residents Face
Higher Flood Risk''. https://headwaterseconomics.org/natural-hazards/
mobile-home-flood-risk/
\9\ Rumbach, A., Sullivan, E., and Makarewicz, C. 2020. ``Mobile
Home Parks and Disasters: Understanding Risk to the Third Housing Type
in the United States''. Natural Hazards Review, 21(2).
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But there are still thousands of communities that don't have the
capacity to even get started.
So what can we do? I'll share our top solutions.
First, let's fix the huge gap in technical assistance. Local
governments typically bear most of the responsibility in planning and
implementing mitigation projects, yet a lack of resources, technical
expertise, and staff too often create enormous barriers. \10\ Programs
administered by State or Federal agencies or by nonprofit partners can
support project identification, design, and implementation, as well as
assistance in compiling grant proposals.
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\10\ Tyler, J., Sadiq, A.A., and Noonan, D.S. (2019). ``A Review
of the Community Flood Risk Management Literature in the USA: Lessons
for Improving Community Resilience to Floods''. Natural Hazards, 96,
1223-1248.
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Second, there's much we can do to streamline how communities access
mitigation funding. Several strategies can be deployed:
Make Federal disaster mitigation programs more predictable
and consistent for communities. Programs like HUD's Community
Development Block Grant Disaster Recovery (CDBG-DR) program has
been only renewed on an ad hoc basis. The ad hoc renewal
doesn't give communities or agencies the predictability they
need to make effective plans. It also results in a significant
lag between when a qualifying disaster occurs and when the
funding gets on the ground. \11\ Authorization could help get
needed funding to communities sooner and more efficiently. It
would decrease administrative burdens for the agency and for
communities by streamlining rules in the Federal Register.
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\11\ Martin, C., Teles, D., and DuBois, N. 2022. Understanding the
Pace of HUD's Disaster Housing Recovery Efforts. Housing Policy Debate,
32(1), 102-127.
Reduce local match requirements. Surveys have found that
rural local governments have higher levels of fiscal stress
than their urban counterparts. \12\ Local match requirements on
grants compound these difficulties. More than 60 percent of
resilience funding in the Bipartisan Infrastructure Law
requires a local match. \13\ Some funding programs even score
applicants higher if they can provide more than the minimum
local match, making it more difficult for smaller communities
to compete. \14\ Match requirements could be eliminated or
reduced, and the definition of what qualifies for ``match''
could be expanded to include long-term maintenance costs.
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\12\ Lobao, L., and Kelly, P. ``Local Governments Across Rural
America: Status, Challenges and Positioning for the Future''. Investing
in Rural Prosperity, Federal Reserve Bank of St. Louis, 81-92.
\13\ Headwaters Economics. 2023. ``Match Requirements Prevent
Rural and Low-Capacity Communities From Accessing Climate Resilience
Funding''. https://headwaterseconomics.org/equity/match-requirements/
\14\ Clancy, N. 2022. ``The Building Resilient Infrastructure and
Communities Mitigation Grant Program: Incorporating Hazard Risk and
Social Equity Into Decisionmaking Processes''. RAND Corporation.
https://www.rand.org/pubs/research_reports/RRA1258-1.html
Refine scoring criteria to prioritize equity and safety.
Application requirements and scoring criteria disadvantage
certain geographies, particularly rural areas, places with
lower incomes, and Tribal communities. Federal agencies should
prioritize equity and public safety, such as by eliminating or
de-emphasizing benefit-cost formulas in the application
process. Benefit-cost analyses are technical reports that are
expensive and highly specialized, typically requiring that
communities hire expensive external consultants. Additionally,
benefit-cost analyses often undervalue the benefits of projects
in lower-capacity and lower-income communities, prioritizing
property values over people. \15\ Recent changes proposed by
the Office of Information and Regulatory Affairs \16\ are a
step in the right direction, but more is needed to address the
equity challenges of benefit-cost analyses.
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\15\ Headwaters Economics. 2021. Improving benefit-cost analyses
for rural areas. https://headwaterseconomics.org/equity/improving-
benefit-cost-analyses/
\16\ The White House. 2023. Strengthening our Regulatory System
for the 21st Century. https://www.whitehouse.gov/omb/briefing-room/
2023/04/06/strengthening-our-regulatory-system-for-the-21st-century/
Shift money into direct allocations. For low-capacity
communities with high risk of flooding or other disasters,
direct funding could be the most efficient way to avoid the
cost of disasters. Shifting more money into block grants and
direct allocations, as opposed to competitive grants, can help
ease some of the unique burdens faced by rural communities and
increase the geographic distribution of funds. For instance,
increasing the State allocation and Tribal set-aside pools in
FEMA's BRIC program could help more States access funding and
encourage smaller, high-impact projects that create
communitywide benefits. Competitive national programs can also
be stratified to ensure more funding reaches rural communities
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and interior States.
Increase rural community capacity to compete for funding.
Federal support for local government capacity and economic
diversification would dramatically improve the ability of rural
communities to access funds. For example, Federal programs
could leverage non-Federal partnerships to scale up technical
assistance for grant writing, project scoping and plan
development, and coordination among stakeholders. Funding
regional projects that leverage urban-rural partnerships can
also benefit low-capacity communities. \17\ Investing in
regional institutions and organizations that can help
coordinate resources and prioritize projects may also be
necessary. Finally, Federal funding programs can prioritize
projects that result in economic diversification in order to
help communities generate predictable local revenue needed for
disaster mitigation.
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\17\ Dabson, B. 2019. ``Regional Solutions for Rural and Urban
Challenges''. State and Local Government Review, 51(4), 283-291.
Overall, we can encourage Federal agencies to prioritize mitigation
funding for low-capacity communities. The existing strategies for
reaching disadvantaged communities are failing to reach rural parts of
this country. This is partly reflected in the $5.6 billion in funding
requests for FEMA resilience funding this year, far exceeding the $3.1
billion available. \18\ But imagine how many communities simply didn't
have the resources or expertise to even apply.
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\18\ FEMA. 2023. Hazard Mitigation Assistance (HMA) FY 2022 BRIC
and FMA subapplication status. https://www.fema.gov/fact-sheet/hazard-
mitigation-assistance-hma-fy-2022-bric-and-fma-subapplications-
submissions
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All of these strategies will yield large savings from avoided
losses. These strategies will alleviate pressure on post-disaster
programs like NFIP and allow projects to move forward--projects that
will reduce risk, protect homes and businesses, and make communities
safer and more attractive places to live.
Thank you for your time and for bringing attention to these issues.
RESPONSES TO WRITTEN QUESTIONS OF CHAIR BROWN
FROM CAROLYN KOUSKY
Q.1. The National Flood Insurance Program is carrying a debt of
$20.5 billion due to catastrophic events dating to Hurricane
Katrina in 2005. FEMA has been making interest payments of
approximately $1 million per day, with expectations that
payments will increase due to rising interest rates. Is it your
understanding that the program's revenues from policy premiums
will never pay back the debt to the Treasury, and that Congress
must forgive the debt?
A.1. Yes, that is my understanding. FEMA, the GAO, and others,
have all stressed that the NFIP will never be able to repay
this debt. It is now burdening policyholders and should be
forgiven.
Q.2. I worked in a bipartisan manner to include additional
investments in FEMA's Flood Mitigation Assistance program in
the Infrastructure Investment and Jobs Act. This legislation
also reduced barriers for lower-income homeowners and
communities in accessing the funds. Is this funding sufficient
to meet the demand for mitigation actions?
A.2. The additional funding and the improvements in access for
lower-income homeowners and communities are incredibly
important investments in lowering the risk of disasters and I
commend Congress for these changes. In addition, infusions of
grant funds to the Hazard Mitigation Grant Program from the 4
percent COVID-19 set-aside and appropriations to the FEMA
Building Resilient Infrastructure and Communities (BRIC)
program mean that combined, there is now an unprecedented
amount of mitigation funding available. While demand does still
outpace supply (for instance, BRIC has been oversubscribed), I
believe the priority now is to ensure that these funds are used
to support cost-effective, impactful, and equitable resilience
projects.
Q.3. The Committee had a hearing in December 2021 on
authorizing the Community Development Block Grant-Disaster
Recovery program. Recognizing that the NFIP and CDBG-DR are
complementary to community resilience, is it your opinion that
authorization of the program would improve the program's
consistency and predictability?
A.3. Yes. Existing policy analysis suggests that permanent
authorization of CDBG-DR would improve consistency, provide
applicants with planning certainty, and speed the process of
obtaining and using funds.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNOCK
FROM CAROLYN KOUSKY
Q.1. As you noted in your testimony, the reauthorization of the
National Flood Insurance Program (NFIP) presents an opportunity
to make important policy changes, such as updating flood maps,
improving risk assessment and mitigation efforts, and promoting
more sustainable development in flood-prone areas. These
changes could help to reduce the financial and human costs of
flooding in the United States.
What specific changes can be made to the risk rating
methodology used by the NFIP to ensure that premiums accurately
reflect flood risk? How, if at all, does the current
methodology limit NFIP's ability to accurately price risk and,
in turn, adequately protect policy holders?
A.1. Risk Rating 2.0 now allows FEMA to harness modern data and
modeling to better reflect rates at a property level. That
said, insurance prices in high-risk areas can be expensive.
This new, risk-based approach to pricing was adopted without a
means-tested assistance program, which is needed to ensure that
all households can access the financial protection of flood
insurance.
Q.2. What measures would help increase the uptake of flood
insurance among homeowners and businesses, particularly in
high-risk areas where coverage is most urgently needed?
A.2. Two approaches are needed to help increase uptake of flood
insurance. The first is the adoption of a means-tested
assistance program to help those who could not otherwise afford
the costs of flood insurance. Many studies have been undertaken
on how to structure this type of program, such as those by
FEMA, the National Academy of Sciences, and RAND. The program
should be supported, not by cross-subsidies, but through
taxpayer dollars. This is an important safety net, akin to
other Federal safety net programs for those most in need. In
addition, the affordability program should be scaled, so that
the amount of support phases out as income increases. And it
should be available to anyone--current or future policyholder--
who wishes to purchase flood insurance.
Second, we need to improve communication of flood risk. The
current FEMA maps are too simplistic, often out-of-date, fail
to include rainfall flooding, and do not show areas where risk
is increasing. Flood risk varies considerably across the
landscape and the current approach to flood risk communication
of being ``in'' or ``out'' of the Special Flood Hazard Area
(SFHA) designation on NFIP maps is misleading. We also need to
provide better information on the cost of flood insurance
earlier in the home buying process. The risk-based premiums
should be easily accessible at any time by anyone and not kept
hidden from potential consumers. This is needed to make sure
people locate in areas where the risk is at a level they can
afford.
------
RESPONSE TO WRITTEN QUESTION OF CHAIR BROWN
FROM PATTY HERNANDEZ
Q.1. The Committee had a hearing in the last Congress on
authorizing the Community Development Block Grant-Disaster
Recovery program. Do you believe that authorization of CDBG-DR,
versus the current ad hoc nature, would deliver much needed
funding to communities sooner? Would this correspond with
improving community resilience?
A.1. Authorizing HUD's Community Development Block Grant
Disaster Recovery (CDBG-DR) could improve the program's
consistency and predictability. The current ad hoc nature of
CDBG-DR does not give communities or agencies the
predictability they need to make effective plans. It also
results in a significant lag between when a qualifying disaster
occurs and when the funding gets on the ground. \1\
Authorization could help get needed funding to communities
sooner and more efficiently, helping strengthen community
resilience. It would also decrease administrative burdens for
the agency and for communities by streamlining rules in the
Federal Register.
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\1\ Martin, C., Teles, D., and DuBois, N. 2022. ``Understanding
the Pace of HUD's Disaster Housing Recovery Efforts''. Housing Policy
Debate, 32(1), 102-127.
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------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNOCK
FROM PATTY HERNANDEZ
Q.1. By investing in measures to prevent or minimize damage
from floods, such as building levees, elevating homes, or
creating green infrastructure, communities can reduce the
likelihood and severity of future flood events. This, in turn,
can lower the risk of flood insurance claims and payouts and
help keep the National Flood Insurance Program (NFIP)
financially solvent.
How effective are the existing mitigation incentives in
promoting homeowners to undertake flood risk reduction
measures? What additional measures would help encourage such
efforts? Please provide any information on the efficacy of
these measures.
A.1. Insurance-related incentives, including access to
federally backed mortgages and insurance premium reductions
achieved through community participation in the NFIP Community
Rating System, can encourage homeowners to pursue risk
reduction.
However, homeowner incentives alone have not accomplished
adequate levels of flood risk reduction. Two types of
additional measures are needed. First, FEMA flood risk map
updates and the associated equitable application of premiums
are needed to encourage broader participation in NFIP. Second,
Federal investment is needed to fund communitywide flood
infrastructure and watershed scale flood risk-reduction
solutions.
Communitywide solutions, including projects such as
conveyance channels, detention basins, and wetland restoration,
are often the most cost-effective methods for reducing flood
risk. Importantly, Federal programs that fund communitywide
flood risk-reduction projects, such as FEMA's Building
Resilience Infrastructure and Communities (BRIC) do not have
sufficient funding to meet demand. In FY 2022, demand for BRIC
funding exceeded available revenue by more than half, a $2
billion gap. Continued support from Congress is needed to
ensure that BRIC and other Federal resilience programs can help
communities avoid future flood disasters.
Q.2. What are the legal and regulatory barriers to implementing
mitigation strategies? What steps can Congress take to address
these barriers?
A.2. In order to address legal and regulatory barriers to
implementing flood mitigation strategies, Congress can:
Encourage more efficient and coordinated
administrative processes in Federal agencies. The
number of months--sometimes years--required to navigate
FEMA, Army Corps of Engineers, and other Federal agency
processes discourages communities from pursuing and
achieving successful flood mitigation.
Ensure there is sufficient capacity in Federal
agencies. FEMA mitigation programs lack the staff and
financial resources to deploy technical assistance to
communities at a scale that meets demands. \2\
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\2\ U.S. Government Accountability Office. 2023. ``FEMA Disaster
Workforce: Actions Needed To Improve Hiring Data and Address Staffing
Gaps''. May 2, 2023. https://www.gao.gov/products/gao-23-105663
Reform policies that inadvertently discourage
communities from pursuing flood mitigation. Burdensome
grant application processes and local match
requirements discourage rural and low-capacity
communities from applying for Federal resilience
grants. Despite this, more than 60 percent of
resilience funding in the Bipartisan Infrastructure Law
requires a local match. \3\ Some funding programs even
score applicants higher if they can provide more than
the minimum local match, making it more difficult for
smaller communities to compete. \4\ Match requirements
could be eliminated or reduced, and the definition of
what qualifies for ``match'' could be expanded to
include long-term maintenance costs. Additionally, the
benefit-cost analysis (BCA) required in many
applications can inadvertently disqualify projects in
disadvantaged communities due to low property values,
leading to inequitable distributions in Federal
mitigation funding. BCA criteria should be revised and
broadened beyond property values to accommodate social
and environmental benefits.
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\3\ Headwaters Economics. 2023. ``Match Requirements Prevent Rural
and Low-Capacity Communities From Accessing Climate Resilience
Funding''. https://headwaterseconomics.org/equity/match-requirements/
\4\ Clancy, N. 2022. ``The Building Resilient Infrastructure and
Communities Mitigation Grant Program: Incorporating Hazard Risk and
Social Equity Into Decision-Making Processes''. RAND Corporation.
https://www.rand.org/pubs/research-reports/RRA1258-1.html
Q.3. How can technology be leveraged to improve flood risk
modeling and inform mitigation efforts and do these
capabilities exist or are capable of existing under the NFIP's
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current structure?
A.3. Data and technology should be used to modernize flood risk
maps. Every community in the United States needs access to
accurate flood risk maps that represent current levels of risk.
However, hydrologic maps of flood risk alone do not paint a
full picture of the need for solutions. Hydrologic maps need to
be paired with data about socioeconomic vulnerabilities to
inform flood policies and practices, including the
establishment of NFIP rates and the ability of Federal agencies
to deploy technical assistance in communities that are
suffering disproportionate impacts from flood events.
Additionally, Federal agencies working to support flood
mitigation can do a better job making their data actionable.
Community leaders need uncomplicated tools, including online
data visualizations, to prioritize flood mitigation and secure
funding. Good examples of actionable data tools that support
disaster mitigation include Wildfire Risk to Communities
(https://wildfirerisk.org/) and the associated Community
Wildfire Defense Grants application tool (https://
wildfirerisk.org/cwdg-tool/). Similar tools could be developed
and supported by the NFIP program.
Additional Material Supplied for the Record
STATEMENT SUBMITTED BY ICBA
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
LETTER SUBMITTED BY CUNA
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
LETTER SUBMITTED BY NMHC AND NAA
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
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