[Congressional Record Volume 151, Number 27 (Wednesday, March 9, 2005)]
[Senate]
[Page S2398]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Ms. LANDRIEU:
  S. 583. A bill to amend the Internal Revenue Code of 1986 to provide 
for the proper tax treatment of certain disaster mitigation payments; 
to the Committee on Finance.
  Ms. LANDRIEU. Mr. President, tax day is right around the corner; just 
over a month away. For most Americans, April 15 is rather routine. You 
spend several days or weeks determining the amount you owe and you pay 
it. But for Christina and Raymond F., two of my constituents--I will 
not use their last name to maintain their privacy--of Avondale, LA, 
this upcoming tax day is going to be anything but routine. Earlier this 
year, Christina and Raymond received a letter from their parish 
government informing them that they must add $45,000 to their gross 
income this year.
  You see, Christina and Raymond's home is located in a flood zone. 
That is not unusual in Louisiana. Twenty percent of the coastal zone of 
my state lies below sea level, including 80 percent of our largest city 
New Orleans. In order to protect their home from rising waters, they 
applied to their local parish to get flood mitigation assistance to 
raise their home above the base flood elevation in their area. To 
qualify, they had to raise $20,000, which they did by refinancing their 
home, and the parish paid the remaining $45,000 through FEMA's National 
Flood Insurance Program. What Christina and Raymond did not realize was 
that at the very same time that they were having this work done on 
their home, the Internal Revenue Service had decided that FEMA disaster 
mitigation assistance should be taxable. So now, this couple is going 
to have to pay taxes on $45,000 even though they never saw a dime of 
this money.
  This news hit this family like a Category 4 hurricane. When Christina 
called my office she thought she said she would have to sell her house 
in order pay the IRS. This is a family with modest means, living in a 
neighborhood that they describe as working class. Her husband's medical 
costs are astronomical--$1,400 per month for his medication alone. The 
house is worth about $100,000 and the mitigation work did not add a 
significant amount to its value according to an appraisal they 
received. You can imagine that under these circumstances, the taxes on 
an additional $45,000 would wipe them out.
  In a place like Louisiana where hurricanes and floods are as much a 
part of life as crawfish boils and Mardi Gras, the key to our peace of 
mind is the National Flood Insurance Program administered by FEMA. In 
Louisiana, 377,000 property owners participate in the National Flood 
Insurance Program. It is a real Godsend to the people of my state.
  In addition, the National Flood Insurance Program provides funding 
for property owners to flood-proof their homes through the flood 
mitigation grant program. FEMA distributes these grant funds to the 
states which then pass them along to local communities. The local 
communities select properties for mitigation and contract for the 
mitigation services. Communities use these funds to put homes on 
stilts, improve drainage on property, and to acquire flood proofing 
materials. These mitigation grants encourage property owners to take 
responsible steps to lessen the potential for loss of life and property 
damage due to future flooding. The grants also have the added benefit 
of saving money in the long term for the Flood Insurance program.
  But the IRS has turned this valuable disaster preparedness and 
prevention program into a financial disaster for responsible property 
owners by making these payments taxable. The first time Christina and 
Raymond learned that this funding was taxable was when their local 
community sent them a letter at the beginning of this year.
  All the people in my state ask for is a warning and an opportunity to 
protect themselves, their homes, and their loved ones from these 
disasters. Through the state-of-the-art systems developed by the 
National Weather Service, we can get a warning about a hurricane. We 
have sophisticated radar to track these storms as they move through the 
Gulf of Mexico, or up the East Coast. When a Category 4 is coming we 
can prepare and pray. The IRS is making us prepare and pay.
  This tax is unfair, unexpected, and an unfortunate policy decision. 
Unfair and unexpected because no one told Christina and Raymond that 
they would be taxed for accepting FEMA disaster mitigation assistance. 
The local officials in their parish were just as surprised as the 
property owners were. It is unfortunate policy because in the long 
term, the IRS will undercut the effectiveness of using mitigation as a 
means of decreasing future costs to the flood insurance program. It 
will force people to take risks that they will not be hit by a 
disaster.
  Today, I am introducing legislation to protect these responsible 
property owners from this unfair tax. My bill excludes disaster 
mitigation assistance from gross income. I have made it retroactive to 
last year in order to protect those property owners who received 
assistance in 2004.
  I understand that a companion measure has been introduced in the 
House of Representatives by Congressman Mark Foley of Florida. It is 
supported by a number of House members from states with high incidents 
of flooding and other natural disasters, many from Louisiana. I applaud 
their efforts.
  But this is not a regional, special-interest bill. FEMA makes 
mitigation grants for a variety of hazards in addition to flooding: 
fire, tornadoes, earthquakes, thunderstorms, dam failures, and a host 
of others. This is not a problem just for properties that flood. So if 
your citizens have used a federal disaster mitigation program to help 
make their properties safer, the tax man will come for them too.
  It is essential that the Congress consider this legislation and pass 
it as soon as possible. As I said at the start of my remarks, tax day 
is coming. We need to act to protect responsible property owners from 
paying this unfair tax.
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