The National Flood Insurance Program cannot afford to continue providing coverage against floods while paying off the claims from Hurricane Katrina, according to the Congressional Budget Office.

In a letter to Sen. Judd Gregg (R-N.H.) the chairman of the Senate Budget Committee, CBO Acting Director Donald Marron said the NFIP's “current financial situation is unsustainable.” Additionally, Marron said the Federal Emergency Management Agency, which oversees the NFIP, “lacks the financial resources to cover the program's costs and the authority to make changes that might ensure that future obligations could be met.” Specifically, he pointed to the NFIP's need for about $3 billion more to pay claims related to Hurricane Katrina and other storms in 2005, which must be provided by Congress.

Marron also noted that the interest alone on what the NFIP has already borrowed to pay claims will amount to roughly $1 billion annually. “Even if FEMA increases the premiums charged for flood insurance by the maximum percentage allowed by law, premium income in the next several years is unlikely to cover claims, debt service, and other costs of the program,” he said. Compounding the problem, Marron said, is that the NFIP does not operate on an actuarial basis and many property owners pay premiums that do not reflect the full risk to their properties. “Thus, over the long term, premium income will be insufficient to cover the program's costs,” he said.