The National Flood Insurance Program cannot afford to continueproviding coverage against floods while paying off the claims fromHurricane Katrina, according to the Congressional BudgetOffice.

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

Marron also noted that the interest alone on what the NFIP hasalready borrowed to pay claims will amount to roughly $1 billionannually. “Even if FEMA increases the premiums charged for floodinsurance by the maximum percentage allowed by law, premium incomein the next several years is unlikely to cover claims, debtservice, and other costs of the program,” he said. Compounding theproblem, Marron said, is that the NFIP does not operate on anactuarial basis and many property owners pay premiums that do notreflect the full risk to their properties. “Thus, over the longterm, premium income will be insufficient to cover the program'scosts,” he said.