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

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

The draft legislation aimed at reauthorizing the National FloodInsurance Program (NFIP) until Sept. 30, 2016 was floated thisweekend by Sen. Tim Johnson, D-S.D., chairman of the committee, andSen. Richard Shelby, R-Ala., ranking minority member of the Senatepanel.

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

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

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

Another controversial provision would require FEMA to tightenits controls over the Write-Your-Own program, which has beenheavily criticized by the Government Accountability Office aspoorly managed.

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

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

The Johnson-Shelby bill does not add business interruption andadditional living expenses to the program. Those provisions wereadded to the House bill during the amendment process, and survivedan effort by Rep. Jeff Flake, R-Ariz., to delete them during adebate in the House.

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

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

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

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

It would also allow FEMA to raise rates up to 15 percentannually; 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 legislationpassed by the House last Wednesday, said Eli Lehrer, a fellow atthe Heartland Institute and an industry consultant on floodissues.

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

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

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

The bill includes a provision added by a flood amendment lastweek to the House bill that requires FEMA to set up a reserve fundaimed at ensuring that the NFIP has the ability to pay off lossesduring heavy flood periods.