WASHINGTON--Over time, the deficit in the National Flood Insurance Program can be expected to grow by $900 million annually because the program was designed to be subsidized, according to a new Congressional Budget Office study.

Moreover, coastal properties tend to be more valuable than other properties nationwide, many have high values, and a "significant fraction" (23 percent) are either second homes or rental properties.

The study coincides with a decision by the House Financial Services Committee to postpone action that had been scheduled for today on legislation extending the program and adding money to it.

According to the CBO study, the program currently has a $17.5 billion deficit as of May, with an authorized debt limit of $20.8 billion.

According to industry lobbyists, the current plan is for a subcommittee of the Financial Services Committee to hold a hearing July 17 on the legislation (H.R. 920) introduced by Rep. Gene Taylor, D-Miss., in February that would add wind and tornado coverage to the NFIP.

After the hearing, there are plans to combine legislation passed by the House last year with the Taylor legislation and then act on it, according to two industry lobbyists.

The study said 40 percent of subsidized coastal properties in the sample studied by the CBO are worth more than $50,000, and 12 percent are worth more than $1 million. For inland properties, the comparable figures are 12 percent and 3 percent, the study found.

The CBO analyzed 10,000 properties as part of its study.

Moreover, a "significant fraction" of subsidized policies are written for high-value properties. "That fact is attributable more to the prevalence of such properties in the program than to a disproportionate allocation of subsidies to high-value properties," the report said.

"Even so, for some categories, subsidized properties are more than the unsubsidized properties," the report said.

The tendency toward above-average values in the NFIP is particularly evident for some groups of properties, notably nonprincipal residences and nonresidential properties.

The study was sought by Sen. Judd Gregg, R-N.H., ranking minority member of the Senate Budget Committee.

Regarding the value of properties, the study found the median value of owner-occupied housing in the U.S. is approximately $160,000; the median value for single-family principal residences range from about $220,000 to $40,000.

"Much of the difference [between coastal properties and the median] is attributable to the higher property values in areas that are close to water," according to the report.

The report said it is likely that "some or all" of the value of the subsidy offered by the NFIP program is likely to be included in the property's value when it is sold.

Thus, when a subsidized property is sold, the buyer essentially pays.

Special Reports /

Flood Program Building Huge Deficit, Says Study

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