[House Report 109-44]
[From the U.S. Government Publishing Office]



109th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                     109-44

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



 
  TREATMENT OF CERTAIN PAYMENTS UNDER NATIONAL FLOOD INSURANCE PROGRAM

                                _______
                                

 April 14, 2005.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

  Mr. Oxley, from the Committee on Financial Services, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 804]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Financial Services, to whom was referred the 
bill (H.R. 804) to exclude from consideration as income certain 
payments under the national flood insurance program, having 
considered the same, report favorably thereon without amendment 
and recommend that the bill do pass.

                                CONTENTS

                                                                   Page
Purpose and Summary..............................................     1
Background and Need for Legislation..............................     2
Hearings.........................................................     2
Committee Consideration..........................................     3
Committee Votes..................................................     3
Committee Oversight Findings.....................................     3
Performance Goals and Objectives.................................     3
New Budget Authority, Entitlement Authority, and Tax Expenditures     3
Committee Cost Estimate..........................................     3
Congressional Budget Office Estimate.............................     3
Federal Mandates Statement.......................................     4
Constitutional Authority Statement...............................     5
Applicability to Legislative Branch..............................     5
Section-by-Section Analysis of the Legislation...................     5
Changes in Existing Law Made by the Bill, as Reported............     5

                          Purpose and Summary

    The purpose of the bill is to exclude from consideration as 
income certain payments under the national flood insurance 
program.

                  Background and Need for Legislation

    Congress created the National Flood Insurance Program 
(NFIP) in 1968 to address the increasing costs of taxpayer-
funded disaster relief for flood victims and the increasing 
amount of damage caused by floods. The Federal Emergency 
Management Agency (FEMA) administers the NFIP. Home and 
business owners are able to purchase flood insurance if their 
properties are located in communities that adopt and enforce 
floodplain management ordinances to reduce future flood damage. 
One of the objectives of the NFIP is to make flood insurance 
affordable, so full actuarial rates are not charged.
    The Bunning-Bereuter-Blumenauer Flood Insurance Reform Act 
of 2004 (P.L. 108-264) was signed into law on June 30, 2004. 
This legislation, sponsored by Sen. Jim Bunning (KY), Rep. Doug 
Bereuter (NE) and Rep. Earl Blumenauer (OR), reauthorized the 
NFIP until 2008 and established a pilot program for the 
mitigation of severe repetitive loss properties, which FEMA 
estimates cost the program $200 million annually.
    The Bunning-Bereuter-Blumenauer law primarily addresses the 
problem of repetitive loss properties through flood mitigation. 
The pilot program authorized in the legislation requires people 
to either accept mitigation assistance or face significantly 
higher premiums. Owners who refuse assistance will no longer be 
eligible for subsidized flood insurance far below the actuarial 
risk rate they should be paying. Over time, as mitigation 
grants and preventative measures change the nature of 
repetitive loss properties, the NFIP is expected to save a 
significant amount of money.
    H.R. 804, introduced on February 15, 2005, will prevent 
federal agencies that administer means-tested or income-tested 
benefits from considering NFIP mitigation grants as income. 
H.R. 804 is necessary due to an Internal Revenue Service (IRS) 
ruling in July 2004 that such grants must be reported as income 
for tax purposes. This IRS ruling has caused significant 
uncertainty in the administration of the Bunning-Bereuter-
Blumenauer Flood Insurance Reform Act of 2004. Anecdotal 
information has revealed that a significant number of 
homeowners have refused mitigation offers not only due to the 
fear of a potential tax liability, but also the potential for 
other unknown liabilities imposed by other federal government 
agencies. These penalties could include the loss of certain 
federal education, nutrition and health care benefits. H.R. 804 
eliminates the potential for additional penalties by preventing 
federal government agencies (other than the IRS) from 
considering NFIP flood mitigation grants as income.
    The precedent for this exception is found in the Stafford 
Act, which explicitly states that any disaster or pre-disaster 
mitigation payments made to homeowners under that Act are not 
to be considered as income by any federal agency administering 
a means- or income-tested benefit. By incorporating this 
language in the National Flood Insurance Act, H.R. 804 will 
resolve any additional uncertainty by likewise preventing 
federal agencies from considering flood mitigation grants as 
income.

                                Hearings

    There were no hearings held on this legislation.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
March 16, 2005, and ordered H.R. 804 reported by a voice vote.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. No 
record votes were taken with in conjunction with the 
consideration of this legislation. No amendments were 
considered by the Committee. A motion by Mr. Oxley to report 
the bill to the House with a favorable recommendation was 
agreed to by a voice vote.

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee has held hearings 
previously and made findings that are reflected in this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee establishes the 
following performance related goals and objectives for this 
legislation:
    The bill clarifies existing law to ensure that certain 
payments under the national flood insurance program are not 
treated as income by federal agencies administering means-
tested or income-tested benefit programs, thus reducing the 
potential for unknown consequences under other statutes.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee finds that this 
legislation would result in no new budget authority, 
entitlement authority, or tax expenditures or revenues.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                  Congressional Budget Office Estimate

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, March 31, 2005.
Hon. Michael G. Oxley,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 804, a bill to 
exclude from consideration as income certain payments under the 
national flood insurance program.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Kathleen 
FitzGerald.
            Sincerely,
                                      Elizabeth M. Robinson
                                         (For Douglas Holtz-Eakin).
    Enclosure.

H.R. 804--A bill to exclude from consideration as income certain 
        payments under the national flood insurance program

    If H.R. 804 were enacted, payments made under the National 
Flood Insurance Program for flood mitigation activities would 
not be counted as income or resources when determining 
eligibility for any federal means-tested program. The Federal 
Emergency Management Agency (FEMA) awards grants to states and 
communities, which in turn distribute funds to individuals and 
businesses, for activities that reduce the risk of repetitive 
flood damage to buildings. Data from FEMA show that the average 
approved award is about $53,000.
    CBO expects that enacting this bill would increase the 
number of persons eligible for Food Stamp and Medicaid 
benefits. Currently, flood mitigation grants are counted as 
income or resources by these programs and make some people 
ineligible for benefits or reduce the amount of their benefit. 
CBO estimates that spending for these programs together would 
increase by about $1 million a year and $10 million over the 
2006-2015 period. Enacting the bill would not affect revenues.
    H.R. 804 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act. The 
increase in the number of people eligible for Medicaid benefits 
would result in additional spending by states totaling about $4 
million over the 2006-2015 period.
    The CBO staff contacts for this estimate are Kathleen 
FitzGerald (for federal costs); Leo Lex (for the impact on 
state, local, and tribal governments); and Paige Piper/Bach 
(for the private-sector impact). This estimate was approved by 
Peter H. Fontaine, Deputy Assistant Director for Budget 
Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional Authority of Congress to enact this legislation 
is provided by Article 1, section 8, clause 1 (relating to the 
general welfare of the United States) and clause 3 (relating to 
the power to regulate interstate commerce).

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

             Section-by-Section Analysis of the Legislation


Section 1. Treatment of Certain Payments Under National Flood Insurance 
        Program

    This section adds a new section to the National Flood 
Insurance Act of 1968 to provide that assistance provided under 
the National Flood Insurance Program for flood mitigation 
activities shall not be considered income or a resource of the 
owner (or any lessee or user) of the property when determining 
eligibility for or benefit levels under any income assistance 
or resource-tested program that is funded in whole or in part 
by an agency of the United States or by appropriated funds of 
the United States.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (new matter is 
printed in italic and existing law in which no change is 
proposed is shown in roman):

        SECTION 1324 OF THE NATIONAL FLOOD INSURANCE ACT OF 1968


                     TREATMENT OF CERTAIN PAYMENTS

  Sec. 1324. Assistance provided under a program under this 
title for flood mitigation activities (including any assistance 
provided under the mitigation pilot program under section 
1361A, any assistance provided under the mitigation assistance 
program under section 1366, and any funding provided under 
section 1323) with respect to a property shall not be 
considered income or a resource of the owner (or any lessee or 
user) of the property when determining eligibility for or 
benefit levels under any income assistance or resource-tested 
program that is funded in whole or in part by an agency of the 
United States or by appropriated funds of the United States.

                                  
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