House Flood Reform Bill Seen Less Costly

WASHINGTON–A controversial House-approved bill to reform the National Flood Insurance Program by adding windstorm coverage is cheaper than a Senate measure according to a Congressional Budget Office report.

Compared with the House bill, a Senate bill, which CBO called a more practical approach to revise the flood program would have a greater cost over the next five years, the CBO said.

“CBO expects that enacting this legislation would improve the financial status of the NFIP and significantly increase the likelihood that the program could continue to offer insurance coverage and pay claims in a timely fashion,” the report on the Senate bill said.

But its cost would be higher because it calls for forgiving the NFIP's current $17.5 billion debt to the government for past claims. The Senate bill would also authorize $2.4 billion over 5 years for the NFIP's flood mapping program.

The Senate bill would authorize an increase in premiums by 25 percent per year on certain policies currently subsidized by the program, as well as provide authority for rate increases for non-subsidized policies by 15 percent annually.

As to the estimates, the CBO said the net impact of the Senate bill would be an increase in net government spending of $1.2 billion over the next 10 years.

As for the House bill, it estimates that it would cost the government $725 million in 2009, but no additional outlays except for the mapping and other studies through 2012.

The CBO based its estimates on the supposition that any final bill would raise the cap on the average annual premium increase allowed under current law from 10 percent to 15 percent, a provision which is creating a major controversy.

Specifically, both Louisiana senators, Mary Landrieu, D, and David Vitter, R, have placed a hold on Senate legislation containing a similar provision because it would mandate charging actuarial rates on NFIP policies.

They object to it because the majority of Louisiana homeowners depend on the program, according to Ms. Landrieu, and raising rates would have the potential to make it beyond the ability of some Louisiana customers to pay.

Sen. Vitter opposes the Senate bill because it does not expand coverage or raise maximum coverage levels, and because it does not include wind damage coverage, which the House all-perils measure does.

The optional wind-damage protection in the House bill has brought a White House veto threat, but House Financial Services Committee Chairman Rep. Barney Frank, D-Mass., whose panel has jurisdiction over the bill, has said he would consider dropping the wind provisions if they impede progress to a final bill.

In the CBO report, it projects an increase in spending based on the House bill of $725 million annually. The House bill would authorize $2.8 billion over the next five years from mapping areas at risk of flooding.

But the House bill also calls for another controversial provision, raising certain civil penalties on lending institutions that the CBO estimates would increase NFIP revenues by $1 million a year.

The report on the Senate bill offers some chilling comments on the potential fate of the NFIP program. CBO said that it “expects that without a change in law, the NFIP will be unable to pay all flood insurance claims promptly, and faced with a nonfunctional program, policyholders may abandon it.”

In such cases, the CBO said, the federal government may be called upon to provide additional relief in the aftermath of a disaster for properties that would have otherwise been insured. “CBO cannot predict when this might occur, but today, the program faces a future with inadequate resources to pay its obligations,” the report said.