The National Flood Insurance Program (NFIP)will likely need to go to Congress for additional borrowingauthority to pay claims from Superstorm Sandy, according to twogovernment watchdog organizations.

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“It appears likely that Sandy will exhaust the NFIP's remaining$3 billion of statutory borrowing authority, meaning it will needto request more money from Congress to pay its claims,” R.J.Lehmann, a senior fellow at the R Street Institute (a Washingtonthink tank), says in a statement.

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“In the short term, we would insist the NFIP use its existingauthority to raise rates, buy reinsurance and issue catastrophebonds, so that the private market, rather than taxpayers, assumesthe risk of these sorts of catastrophes in the future,” he adds.“Over the longer term, further NFIP reform must include phasing inactuarial rates for all policies and possibly selling some of theNFIP's 5.6 million policies to private insurers.”

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R Street Institute President Eli Lehrer says calculations by hisgroup and others indicate that the Federal Emergency ManagementAgency (FEMA), which runs the NFIP, has only $1 billion on hand topay claims.

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Steve Ellis, vice president of budget watchdog group Taxpayersfor Common Sense, made the same prediction. 

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Lehrer and Ellis participated in a post-Sandy conference callconvened by SmarterSafer.org, an organization representing adiverse group of individuals with interests in disaster mitigationand conservation.

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According to Lehrer, R Street's analysisindicates that the NFIP owes the government $18 billion andcurrently has a $20 billion cap on borrowing. “It is highly likelythat the NFIP will run into a situation that will require havingits borrowing limit increased,” he said during the call, addingthat this will likely happen before the end of the year.

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While an increase in the NFIP debt limit “is inevitable andshould be granted,” Lehrer said, “Congress needs to draw a brightline that the program cannot forever prove a burden to taxpayers.It must accelerate its efforts to raise NFIP rates and transitionthe program to the private sector.

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“New Jersey will rebuild, and indeed it must,” he added. “Somust the other damaged areas. But we can't—and shouldn't—rebuild injust the same way or waste money doing it. Rebuilding the right wayis more fiscally responsible and better for theenvironment.” 

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