[House Report 110-510]
[From the U.S. Government Publishing Office]
110th Congress Report
HOUSE OF REPRESENTATIVES
2d Session 110-510
======================================================================
AMENDING THE NATIONAL FLOOD INSURANCE ACT OF 1968 TO PROVIDE FOR THE
PHASE-IN OF ACTUARIAL RATES FOR CERTAIN PRE-FIRM PROPERTIES
_______
January 16, 2008.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Frank of Massachusetts, from the Committee on Financial Services,
submitted the following
R E P O R T
[To accompany H.R. 3959]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred the
bill (H.R. 3959) to amend the National Flood Insurance Act of
1968 to provide for the phase-in of actuarial rates for certain
pre-FIRM properties, having considered the same, report
favorably thereon with an amendment and recommend that the bill
as amended do pass.
CONTENTS
Page
Amendment........................................................ 1
Purpose and Summary.............................................. 2
Background and Need for Legislation.............................. 2
Hearings......................................................... 3
Committee Consideration.......................................... 3
Committee Votes.................................................. 3
Committee Oversight Findings..................................... 3
Performance Goals and Objectives................................. 4
New Budget Authority, Entitlement Authority, and Tax Expenditures 4
Committee Cost Estimate.......................................... 4
Congressional Budget Office Estimate............................. 4
Federal Mandates Statement....................................... 5
Advisory Committee Statement..................................... 5
Constitutional Authority Statement............................... 5
Applicability to Legislative Branch.............................. 6
Earmark Identification........................................... 6
Section-by-Section Analysis of the Legislation................... 6
Changes in Existing Law Made by the Bill, as Reported............ 6
Amendment
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. PHASE-IN OF ACTUARIAL RATES FOR CERTAIN PRE-FIRM PROPERTIES.
(a) In General.--Section 1308(c) of the National Flood Insurance Act
of 1968 (42 U.S.C. 4015(c)) is amended--
(1) by redesignating paragraph (2) as paragraph (3); and
(2) by inserting after paragraph (1) the following new
paragraph:
``(2) Recently purchased pre-firm single family properties
used as principal residences.--Any single family property that
is used as a principal residence that--
``(A) has been constructed or substantially improved
and for which such construction or improvement was
started, as determined by the Director, before December
31, 1974, or before the effective date of the initial
rate map published by the Director under paragraph (2)
of section 1360 for the area in which such property is
located, whichever is later; and
``(B) is purchased--
``(i) after the date of enactment of this
paragraph; and
``(ii) for not less than $600,000.''.
(b) Technical Amendments.--Section 1308(c) of the National Flood
Insurance Act of 1968 (42 U.S.C. 4015(c)) is amended--
(1) in the matter preceding paragraph (1), by striking ``the
limitations provided under paragraphs (1) and (2)'' and
inserting ``subsection (e)''; and
(2) in paragraph (1), by striking ``, except'' and all that
follows through ``subsection (e)''.
(c) Effective Date and Transition.--
(1) Effective date.--The amendments made by subsections (a)
and (b) shall apply beginning on January 1, 2011, except as
provided in paragraph (2) of this subsection.
(2) Transition for properties covered by flood insurance upon
effective date.--
(A) Increase of rates over time.--In the case of any
property described in paragraph (2) of section 1308(c)
of the National Flood Insurance Act of 1968, as amended
by subsection (a) of this section, that, as of the
effective date under paragraph (1) of this subsection,
is covered under a policy for flood insurance made
available under the national flood insurance program
for which the chargeable premium rates are less than
the applicable estimated risk premium rate under
section 1307(a)(1) for the area in which the property
is located, the Director of the Federal Emergency
Management Agency shall increase the chargeable premium
rates for such property over time to such applicable
estimated risk premium rate under section 1307(a)(1).
(B) Annual increase.--Such increase shall be made by
increasing the chargeable premium rates for the
property (after application of any increase in the
premium rates otherwise applicable to such property),
once during the 12-month period that begins upon the
effective date under paragraph (1) of this subsection,
and once every 12 months thereafter until such increase
is accomplished, by 15 percent (or such lesser amount
as may be necessary so that the chargeable rate does
not exceed such applicable estimated risk premium rate
or to comply with subparagraph (C)). Any increase in
chargeable premium rates for a property pursuant to
this paragraph shall not be considered for purposes of
the limitation under section 1308(e) of such Act.
(C) Full actuarial rates.--The provisions of
paragraph (2) of such section 1308(c) shall apply to
such a property upon the accomplishment of the increase
under this paragraph and thereafter.
Purpose and Summary
H.R. 3959 amends the National Flood Insurance Act of 1968
to reduce subsidies under the National Flood Insurance Program
(``NFIP'') for single family primary residences that are sold
for at least $600,000.
Background and Need for Legislation
The NFIP, created by Congress in 1968, is administered by
the Federal Emergency Management Agency (``FEMA''). The NFIP
was designed to provide homeowners with affordable insurance
protection against floods while alleviating taxpayers'
responsibility for flood losses paid out in the form of post-
disaster relief. Ancillary to providing flood insurance under
the NFIP, FEMA also identifies and maps flood prone areas
eligible to participate in the program. The maps FEMA issues
are known as Flood Insurance Rate Maps (``FIRMs'').
Structures that were built before FIRMs were issued,
generally before 1974, receive subsidized flood insurance
rates. These structures are known as ``pre-FIRM'' structures.
Pre-FIRM rates are determined through a federal rule-making
process designed to encourage participation in the NFIP and
not, by definition, to generate premium income sufficient to
pay anticipated claims on pre-FIRM properties.
In the past, Congress has appropriated funds to make-up the
difference between pre-FIRM and actuarial rates, expecting
that, over time, the percentage of pre-FIRM structures would
decline and that most or all of the structures insured under
the NFIP would be subject to actuarial rates. However, pre-FIRM
structures continue to represent approximately 24 percent of
structures insured under the NFIP and the NFIP has used its
borrowing authority and its risk-based premium income to cover
any shortfalls that result from the NFIP's two tier rate
structure.
H.R. 3959 removes subsidies, over time, for pre-FIRM,
single family properties used as a principal residence that are
purchased for at least $600,000. Beginning on January 1, 2011,
NFIP premiums for such properties will be increased by 15
percent annually until actuarial rates are reached.
Hearings
No hearings were held on this legislation in the 110th
Congress.
Committee Consideration
The Committee on Financial Services met in open session on
October 31, 2007, and ordered H.R. 3959, to amend the National
Flood Insurance Act of 1968 to provide for the phase-in of
actuarial rates for certain pre-FIRM properties, as amended,
favorably reported to the House 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. A motion by Mr. Frank to
report the bill, as amended, to the House with a favorable
recommendation was agreed to by a voice vote. During the
consideration of the bill, the following amendment was
considered:
An amendment by Mr. Frank, No. 1, manager's amendment, 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 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:
H.R. 3959 removes a subsidy under the National Flood
Insurance Program for primary residential properties built
before flood maps were put into effect with the goal of
strengthening the flood insurance program and making it more
financially viable.
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 adopts as its
own the estimate of new budget authority, entitlement
authority, or tax expenditures or revenues contained in the
cost estimate prepared by the Director of the Congressional
Budget Office pursuant to section 402 of the Congressional
Budget Act of 1974.
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:
November 20, 2007.
Hon. Barney Frank,
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. 3959, a bill to
amend the National Flood Insurance Act of 1968 to provide for
the phase-in of actuarial rates for certain pre-FIRM
properties.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Daniel
Hoople.
Sincerely,
Peter R. Orszag.
Enclosure.
H.R. 3959--To amend the National Flood Insurance Act of 1968 to provide
for the phase-in of actuarial rates for certain pre-FIRM
properties
H.R. 3959 would direct the Federal Emergency Management
Agency (FEMA) to increase premiums for certain policyholders
that pay less than the actuarial cost (the amount estimated to
cover expected claims in any given year) of their flood
insurance policies. Any premium increase implemented as a
result of the bill would yield additional receipts to the
National Flood Insurance Program (NFIP); however, CBO estimates
that such funds would be spent to cover the ongoing costs of
the program, resulting in no significant net effect on direct
spending. Enacting this legislation would not affect revenues.
H.R. 3959 contains no intergovernmental or private-sector
mandates as defined in the Unfunded Mandates Reform Act and
would not affect the budgets of state, local, or tribal
governments.
H.R. 3959 would direct FEMA to increase flood insurance
premiums for some single-family, primary residences that are
purchased after the bill's enactment for at least $600,000.
Under current law, FEMA charges some policyholders a discounted
premium because their properties were built before the
community's flood insurance rate map (FIRM) was completed, or
before 1975, whichever is later. Those properties are
collectively known as pre-FIRM properties. Under H.R. 3959,
premium rates for this subset of pre-FIRM properties would be
increased by a maximum of 15 percent a year until 2011, after
which all properties in that subset would be charged actuarial
rates.
CBO expects that enacting H.R. 3959 would increase premium
income to the NFIP over the 2008-2017 period. Based on data
from the agency, we estimate that up to 150,000 properties
might be charged a higher premium. Assuming that 1 percent of
those properties would be sold in each year, we estimate that
net income to the program would increase by $65 million over
the 2008-2017 period. (Income could vary, depending on the
number of properties sold during the next 10 years and the
number of policyholders that would drop coverage in the face of
higher rates.) CBO anticipates that additional premium receipts
generated as a result of this legislation would be used to pay
ongoing expenses of the NFIP, including future insurance claims
that would not otherwise receive timely benefit payments. As a
result, the bill's enactment would not have a significant net
budgetary impact.
The CBO staff contact for this estimate is Daniel Hoople.
This estimate was approved by Theresa Gullo, 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.
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
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.
Earmark Identification
H.R. 3959 does not contain any congressional earmarks,
limited tax benefits, or limited tariff benefits as defined in
clause 9 of rule XXI.
Section-by-Section Analysis of the Legislation
Section 1. Phase-in of actuarial rate for certain pre-FIRM properties
This section requires the removal of flood insurance
subsidies for recently purchased pre-FIRM single family
properties used as principal residences that have been
purchased for at least $600,000. Beginning on January 1, 2011,
NFIP premiums for such properties will be increased by 15
percent annually until actuarial rates are reached.
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 (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italics, existing law in which no change
is proposed is shown in roman):
SECTION 1308 OF THE NATIONAL FLOOD INSURANCE ACT OF 196
ESTABLISHMENT OF CHARGEABLE PREMIUM RATES
Sec. 1308. (a) * * *
* * * * * * *
(c) Actuarial Rate Properties.--Subject only to [the
limitations provided under paragraphs (1) and (2)] subsection
(e), the chargeable rate shall not be less than the applicable
estimated risk premium rate for such area (or subdivision
thereof) under section 1307(a)(1) with respect to the following
properties:
(1) Post-firm properties.--Any property the
construction or substantial improvement of which the
Director determines has been started after December 31,
1974, or started after the effective date of the
initial rate map published by the Director under
paragraph (2) of section 1360 for the area in which
such property is located, whichever is later[, except
that the chargeable rate for properties under this
paragraph shall be subject to the limitation under
subsection (e)].
(2) Recently purchased pre-firm single family
properties used as principal residences.--Any single
family property that is used as a principal residence
that--
(A) has been constructed or substantially
improved and for which such construction or
improvement was started, as determined by the
Director, before December 31, 1974, or before
the effective date of the initial rate map
published by the Director under paragraph (2)
of section 1360 for the area in which such
property is located, whichever is later; and
(B) is purchased--
(i) after the date of enactment of
this paragraph; and
(ii) for not less than $600,000.
[(2)] (3) Certain leased coastal and river
properties.--Any property leased from the Federal
Government (including residential and nonresidential
properties) that the Director determines is located on
the river-facing side of any dike, levee, or other
riverine flood control structure, or seaward of any
seawall or other coastal flood control structure.
* * * * * * *