NU Online News Service, July 18, 1:30 p.m. EDT

WASHINGTON—Flood-insurance reauthorization legislation proposed by the leadership of the Senate Banking Committee would mandate a phase-out of subsidies while forgiving the program's debt.

The draft legislation aimed at reauthorizing the National Flood Insurance Program (NFIP) until Sept. 30, 2016 was floated this weekend by Sen. Tim Johnson, D-S.D., chairman of the committee, and Sen. Richard Shelby, R-Ala., ranking minority member of the Senate panel.

It is believed to be the first step in a process aimed at reporting a bill out of the committee on July 28. The bill has yet to be introduced, but that could occur at any time, according to industry officials.

The bill also gives the Federal Emergency Management Agency (FEMA) great leeway in setting rates, especially in areas subject to mandated flood insurance through new mapping.

All new flood-insurance policies would be priced at actuarial rates as of the date of enactment.

Another controversial provision would require FEMA to tighten its controls over the Write-Your-Own program, which has been heavily criticized by the Government Accountability Office as poorly managed.

The bill, similar to one proposed by Shelby in 2008 and passed by the Senate later that year, would forgive the approximate $18 billion debt accumulated by the program because of Hurricanes Katrina and Rita in 2005.

It would also limit the program's borrowing authority with the U.S. Treasury to $1.5 billion.

The Johnson-Shelby bill does not add business interruption and additional living expenses to the program. Those provisions were added to the House bill during the amendment process, and survived an effort by Rep. Jeff Flake, R-Ariz., to delete them during a debate in the House.

A maximum two-year phase-in of actuarial rates would be required under this bill.

The House bill, H.R. 1309, the Flood Insurance Reform Act of 2011, is quite different, phasing in actuarial rates over a much longer period, up to 10 years.

At the same time, the Johnson-Shelby bill adds a requirement for FEMA to allow customers that do not already have their premiums escrowed every month to pay their policies in installments, "providing a more affordable option for consumers purchasing insurance."

The House bill allows quarterly payments for people whose premiums are not escrowed. Currently, FEMA requires a single, annual payment.

It would also allow FEMA to raise rates up to 15 percent annually; the House bill limits annual increases to 10 percent.

The House bill also calls for a strong local role in remapping, while the Shelby bill would leave the matter to professionals.

The bill is somewhat different and tougher than the legislation passed by the House last Wednesday, said Eli Lehrer, a fellow at the Heartland Institute and an industry consultant on flood issues.

Lehrer says he still would not rule out that legislation could be hammered out by Congress for a five-year reauthorization of the program before the current extension runs out Sept. 30.

"The two bills fundamentally agree that subsidies should be phased out, the Shelby bill at a faster rate," Lehrer says. "The Senate and the House bills are similar, and the differences in theory could still be worked out by Sept. 30," he says.

Moreover, Lehrer expects that the Shelby bill will be substantively amended before it passes the panel.

The bill includes a provision added by a flood amendment last week to the House bill that requires FEMA to set up a reserve fund aimed at ensuring that the NFIP has the ability to pay off losses during heavy flood periods.

Special Reports /

Senate Banking Committee NFIP Bill Forgives Debt, Reforms FEMA Role

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