In My Opinion

Fred Grimm: A call for fair rates of flood insurance

 

fgrimm@MiamiHerald.com

Oh my, wasn’t Congress all in a lather back in 2012, determine to fix that tax-sucking, deficit-running, freeloading federal flood insurance program.

Not that there wasn’t a lot to hate, especially for Tea Party deficit hawks, about an insurance that had fallen $28 billion dollars short of paying its own way. That was subsidizing 1.1 million of its 5.6 million policies. That, instead of charging those 1.1 million policy holders a realistic rate, based on actual risk, the program made up the shortfall by mooching off taxpayers.

Critics grumbled that the program amounted to a hand-out to the well-heeled, who prefer living near the water while forcing folks in the hinterlands to diversify the risk of dwelling in a picturesque flood zone. At least that was a prevailing argument back in 2012. The libertarian think tank R Street Institute described the National Flood Insurance Program as welfare-for-the-rich, noting that “78.8 percent of subsidized policies are in counties that rank in the top 30 percent of home values, while less than 1 percent are in counties that rank in the bottom 30 percent.”

Worse, a third of the insurance payouts since Congress created the flood insurance program back in 1968 had gone to “repetitive loss” homeowners, allowing them to rebuild destroyed or damaged homes in the same vulnerable flood plains without penalty. Risk be damned. As if NFIP’s goal was to subsidize future catastrophes.

Homeowners could rebuild and rebuild and rebuild again without worrying that the NFIP might jack up their rates. It was a policy that drove environmentalists to distraction, worried that the subsidized seaside flood insurance insulated Americans from the true cost of sea level rise, a major consequence of global warming.

It seemed that everybody along the political spectrum had a gripe about flood insurance. So damn near everybody in Congress bought into the fix, the Biggert-Waters Flood Insurance Reform Act, which would terminate subsidized rates for insurance policies in flood zones. Some 345,000 second homes, 87,000 business properties and 9,000 of those infamous “repetitive” loss properties would lose their subsidies immediately. The remaining 715,000 homeowners with subsidized policies would phase out over time — unless the properties were sold, when the new actuarial-based rates would kick in. Other insured properties might also face big hikes, based on revised flood plain maps.

It all looked so sensible on paper. So fiscally responsible. The Biggert-Waters Act of 2012 defied the notion that congressional bipartisanship was extinct, passing the House of Representatives with a 406-22 vote and the Senate with little opposition after it was tucked into a transportation bill.

Turns out that this grand united gesture toward fiscal responsibility comes with some dismal, unanticipated consequences. Policy holders are discovering that without subsidies, their insurance rates are soaring, some by thousands of dollars. Which in turn has dampened a real estate market just now emerging from the recession, with potential buyers spooked by the reconfigured cost of flood insurance.

Suddenly, the same deficit-cutting pols who were sucking up to the Tea Party back in 2012 are sounding like dewy-eyed liberals when it comes to keeping their constituents on the flood insurance dole. Even those welfare-hating, food stamp-stomping right wingers in the congressional delegations of Mississippi and Louisiana want their flood insurance hand-outs back. They love them, lately, with the same fervor Old South fiscal conservatives harbor for cotton, rice, soybean, tobacco and sugar subsidies.

A bill designed to postpone the effects of Biggest-Waters for at least four years, sponsored by a Democrat from New Jersey and a Republican from Georgia, is set for a Senate vote this week and will almost certainly pass.

In Florida, Sen. Bill Nelson and one-time Tea Party darling Marco Rubio, both said they’ll support the Homeowner Flood Insurance Affordability Act. “I’ll vote for this bill and I’ll support it because it’s important to prevent these rate increases from going forward,” Rubio told reporters.

Getting the new bill through the House of Representatives, like anything else considered by that dysfunctional institution, will be tougher. But Republican U.S. reps from coastal states having been catching hell from constituents, some of whom face 500 percent or 600 percent or more jumps their rates. “It’s out of control,” complained U.S. Rep. Vern Buchanan, the Longboat Key Republican who heads the Florida congressional delegation. “We’re taking lot of heat. A lot of people are worried about losing their homes.”

It seems this particular variety of fiscal conservatism isn’t nearly as much fun as cutting welfare or food stamps or unemployment payments. Plenty of working class Floridians face huge spikes in their premiums but what’s important here, as the libertarians at the R Street Institute noted, is that the program disproportionately subsidizes the coastal homes of the wealthy. When rich folks squeal, pols in Washington tend to listen.

So we had the odd scenario in November when the House Financial Services Committee summoned FEMA Director Craig Fugate, who’s tasked with administering the flood insurance program, demanding to know why the hell he was enforcing the awful law nearly everyone in the House had supported back in 2012. Fugate warned them that gutting the Biggert-Waters would have consequences. “The moral hazard of subsidizing risk is, we’re going to rebuild right where we were, just the way it was, and we’re going to get wiped out.”

But the moral hazard is not nearly as frightening as the political hazard engendered by Biggert-Waters.

No state’s getting mauled more than Florida, with 268,500 subsidized policy holders living in harm’s way. Gov. Rick Scott, another Florida politician suddenly forgetful of his Tea Party credentials, wrote to his good buddy President Obama on Jan. 15, asking the prez to undo the 2012 law by executive order.

To be fair, Floridians, despite all those subsidized policies, have paid considerably more into the flood insurance program over the years than they’ve collected. We’ve paid about $3.60 for $1 we’ve gotten back. It ain’t our deficit.

Meanwhile, Mississippians, who tend to elect the most strident opponents of federal “hand-outs,” (except for those nice crop support payments) have sucked $5 out of the program for every dollar paid in. Louisiana, another anti-federal bastion, has collected $3 for every dollar paid. Paying off claims from those two states after Hurricane Katrina accounted for $17 billion of the program’s $28 billion deficit.

Of course, actuaries would remind Floridians, as we dangle perilously over hurricane alley, that insurance rates are based on long-term risks, not short-term history.

The best argument in favor of subsidized flood insurance has to do with plain old fairness. Most of the 268,500 properties plopped down on Florida’s flood plains were built and purchased and sold and repurchased exactly because the feds have been covering 60 percent of the cost of flood insurance for the last 45 years. (Albeit, because of out-dated, erroneous flood-plain maps.) We built on this soggy ground with the fed’s tacit approval.

Besides, Florida’s basic business plan — luring tourists and retirees and foreign ex-pats and rich guys with trophy wives and Justin Bieber to reside along our sunny waterways — has been structured around the promise of low taxes and cheap living. We don’t have much else going for us. Oranges and sugar cane (dependent, of course, on those sweet federal tariffs and price supports) won’t sustain 20 million Floridians.

We’re already struggling with the dismal math of wind storm insurance. To pile crazy-high flood insurance increases rates atop that mess . . . maybe we ought to think about this free market libertarian stuff. Sure, we want to get rid of costly federal hand-outs. Just not the ones we like.

I’m sure they’ll understand why we need their financial assistance back in the American heartland, as they look out their windows and contemplate subsidized corn, corn, corn, as far as the eye can see.

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