HOLMES BEACH -- Pamela Lazaroff and her boyfriend Mike Martell have to grin and bear it when they look at their estimated flood insurance bill for their humble Holmes Beach abode.
Because of changes to the National Flood Insurance Program, the couple's insurance bill will jump 614 percent, from $914 a year to $6,500 a year.
"We knew living on the island comes with added expenses," Lazaroff said. "You know that taxes are higher, know insurance is higher. But what you don't count on is $6,500 or more for flood insurance."
Families and businesses across Florida and the nation didn't count on any fallout from the Biggert-Waters Flood Insurance Reform Act created by Congress in 2012 until now -- and it might be too late to do anything about it.
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Sen. Bill Nelson, D-Fla., filed an amendment to a spending bill last week trying to delay the implementation of parts of the act for a year. He even received Republican Gov. Rick Scott's support to create a moratorium. But his amendment is part of the bill, also under an Oct. 1 deadline, that Congress is battling over to avoid a government shutdown.
Much like the budget battle, the battle over flood insurance could have more far-reaching consequences than most realized.
Flood insurance rates threaten to change the very nature of the island communities as middle-class residents are forced to move out, and those who can afford bigger, elevated houses and condos take over the properties. And as Florida's housing market is hit once again, this time with mandated flood insurance rates that middle-class families can't afford, any economic recovery could plunge.
Middle-class folks like Lazaroff and Martell will be hit especially hard. The couple's two-bedroom, 1,196-square-foot home was built in 1959, according to the Manatee County Property Appraiser. The couple bought the home for $218,000 in 2010, and were able to take advantage of the old rates until now.
They're about to be hit with a double whammy.
The first strike will be the flood insurance rate hikes, phased in over five years because they owned their home before July 2012.
The second strike hits next year, when their flood base level will change from 10 feet to 14 feet in Manatee County's new flood maps to be adopted by March 17, 2014. Even though their home sits on concrete blocks that put it above the current baseline flood elevation, that won't be enough when the maps change.
"You're taking out the middle class with disposable income, and having to put that into flood insurance? I'm scared about what it's going to do to Florida's economy," she said.
That concerns officials like Manatee County Commissioner John Chappie, whose district will be hardest hit locally because it covers the island communities, Cortez, Sarasota Bay and homes along the Manatee River and Wares Creek.
The former Bradenton Beach mayor is powerless in this congressional fight. Not only will the middle class be hit hard, so will the retirees, he notes.
"We have a lot of people here on fixed income who can't afford this, and it's going to force people to do things they don't want to do, which is possibly move out of their homes," Chappie said. "We don't want that to happen, and hopefully Sens. Nelson and (Marco) Rubio and all of them will show their support for our community and all of Florida."
Grappling with change
Manatee has the 10th most-subsidized flood insurance policies in the state, according to Federal Emergency Management Agency data, with 11,264 homes in Manatee County that have a pre-Flood Insurance Rate Map home with a subsidized policy through the National Flood Insurance Program.
Subsidized policies are those that are not paying the full actuarial rate based on what is considered the true flood risk. Homes that typically have those policies were built in high-risk flood zones before the first flood insurance rate map went into effect in Dec. 31, 1974, and haven't been substantially damaged, according to FEMA.
It's not just residences on the beaches that are affected. The changes will affect homes in high-risk flood zones in northwest Bradenton, those near Wares Creek and Cedar Hammock and in low-lying areas in East Manatee. Businesses with subsidized premiums will also see a 25 percent annual increase until the rate is reached, affecting 10,964 businesses in the state.
Sue and John Johnson are Lazaroff's neighbors on Avenue C, where their home, built in 1957, is one of the pre-flood map homes. They didn't even know their flood insurance policy was part of the National Flood Insurance Program until they examined their renewal bill from May with the Herald.
Attached was a letter from Hartford Insurance Co., explaining that the Johnsons will be receiving more information about changes in the flood insurance program -- but no mention that their rates are going to go up because of the federal flood insurance reform act. Instead, an educational packet from FEMA is attached that describes the changes, but doesn't say how the Johnsons will be affected.
"We're retired, and we're on fixed income now, and what little we got, we don't need pushed out the door if we can help it," John Johnson said.
The couple has options, unlike others in this situation. The mortgage is paid off, and they never had to make a flood insurance claim, so they can risk not carrying flood insurance, the couple said. The worst flooding they experienced was during the "No Name Storm" of 1993, which brought water up close to their porch, but the home didn't sustain any damage, John Johnson said. The retirees own two other homes, one in north Florida and another in North Carolina that they can go to if anything ever happens to their Holmes Beach residence.
"We got it covered for floods," said Sue Johnson, laughing.
Realtors are scrambling to make sense of it all, too.
"I don't think necessarily all the Realtors have a handle on that yet," said Linda Formella, a Realtor with Keller Williams in Manatee County.
Florida Realtors, their statewide association, is keeping a close watch on the changes. President Dean Asher met with the governor's cabinet last week to urge his office to lobby Congress to stop the law from taking effect any further. Seasonal homeowners saw the first of their rate increases starting this year in January.
"We believe the reforms will have a detrimental impact on the entire economy of Florida, including existing homeowners and those who want to buy Florida's properties," Asher told the governor's cabinet, which includes Attorney General Pam Bondi, Chief Financial Officer Jeff Atwater and Commissioner of Agriculture Adam Putnam.
"Most sections of the bill relating to rate changes have what you and I would call a 'glidepath' or 'phase in' to actuarial soundness -- similar to what we have done successfully here in Florida with Citizens Property Insurance Corporation," Asher said. "Where there is not a glidepath specified in the flood reform act is for the new homebuyer.
"This reform measure will, in effect, lock current homeowners into their property," he predicted. "Homeowners won't be able to sell because no one will be able to afford to buy after they learn what the flood insurance premium will be."
St. Petersburg Rep. Dwight Dudley is asking for a special session in the Florida Legislature to send a message to Congress to delay the implementation of the rates. Dudley points out that it's not just beachfront properties that will be affected.
"This law impacts not only those residing in coastal communities, but also owners of older homes in low-lying areas," Dudley said. "Bankrupting individuals and communities is unnecessary and counterproductive to our economic recovery and will have long-term dramatic impacts on the construction, insurance, banking and real estate markets, as well as the property tax revenues of state and local governments."
Dudley thinks the act could be better implemented if spread out over a 10-year period instead of five years, and to cap increases at 10 percent instead of 20 percent.
Creativity out of chaos
Buyers and sellers are being creative trying to deal with the changes.
Some prospective homebuyers are already trying to protect themselves, putting a clause in their contract that allows extra time to investigate what flood insurance would cost, Formella said. Under contract terms, if the increase hits a certain percentage, the buyer would be able to back out.
John Laurie, agency executive for BB&T Insurance Services, has seen some Realtors discount homes 15 to 20 percent to help offset the flood insurance increase on the property. People buying homes after July 2012 were able to take advantage of the old rates, but on Oct. 1, they're going to start paying the higher prices as soon as their policy is up for renewal. Homeowners who bought before July 2012 will see the rate hikes phased in over five years.
"They were able to close on a home transaction for, say, $1,880 for flood insurance, and at renewal they're getting killed getting $8,000 bills," Laurie said.
Redevelopment offers investment opportunities to side-step flood insurance, Laurie said. Extreme examples could include the option to raze homes on the islands or inland that don't receive favorable rates because of the home's construction and rebuild to meet criteria.
That option concerns Chappie, who is waiting to see how much his rates will increase.
"It could change the whole character, the look of the island communities, not to mention the mainland communities," Chappie said. "It's happening right now with newer construction being elevated, but it's unfortunate that we could lose older structures that are on the ground."
Some homeowners will be forced to sell and move off the island, he said, especially if their retirement nest egg is whittled away by the increases.
"People are going to be forced to make a decision -- a life changing decision," he said.
Cash buyers have upper hand
Cash buyers will again have an advantage in Florida's coastal areas because if they avoid a mortgage, they won't have to buy flood insurance.
Different scenarios will start to rise, Laurie said. A private investor might loan $250,000 to purchase the land to gain value while the buyer funds the construction. That would be permissible because lenders that aren't federally approved aren't required to have flood insurance, Laurie said.
"I think there's some creativity that will start to happen," he said.
Despite the financial barriers with flood insurance people will try to find ways to live on the waterfront.
"People always want to live near water," Formella said. "It's in our DNA to be near water, and people will always find a way to make that happen."
Charles Schelle, business reporter, can be reached at 941-745-7095. Follow him on Twitter @ImYourChuck.