Flood insurance hikes loom for La. homeowners

Thousands of coastal residents — from the working class in Louisiana to those with beachfront mansions nationwide — remain wary of pending flood insurance rate hikes that are impacting real estate markets more each day.

The year is coming to an end, and congressional efforts to fix skyrocketing flood insurance rate hikes by the end of the year have proven unsuccessful.

But members of the Louisiana congressional delegation and the overall business coalition seeking delays to the National Flood Insurance Program are optimistic a fix could come in January in the Senate and then, eventually, overcome a more onerous hurdle in the U.S. House.

The primary focus is on the Homeowner Flood Insurance Affordability Act to delay many of the most dramatic rate hikes by four years to allow time for creating long-term solutions. Senate Majority Leader Harry Reid has set in motion a January floor vote on the legislation, which requires 60 votes. U.S. Sen. Mary Landrieu, D-La., has assured that there are enough votes to pass it.

The path is a bit murkier in the U.S. House, where the same legislation has about 170 cosponsors but not enough backing yet from the GOP leadership. The leaders argue that the NFIP needs to become more financially self-sustainable.

Among the key roadblocks is the opposition of U.S. Rep. Jeb Hensarling, R-Texas, who chairs the House Financial Services Committee through which the bill would likely travel, and of the subcommittee chairman, Rep. Randy Neugebauer, R-Texas.

The National Flood Insurance Program has been in financial distress with a loss of nearly $25 billion, largely due to payments made after hurricanes Katrina and Rita in 2005. Louisiana has nearly 500,000 NFIP policies, and there are more than 5.5 million policyholders nationwide.

Congress last year passed legislation to make the program more self-sustainable in a large omnibus bill, but the flood insurance rate hikes are much more expensive than many lawmakers anticipated. Landrieu called it well-intentioned legislation with “disastrous consequences.” A lead sponsor of last year’s legislation, Rep. Maxine Waters, D-Calif., is now a leader on the effort to fix her law.

Sen. Bill Nelson, D-Fla., contended that the program is only in financial distress because the federally built levee system failed during Katrina — and not because of the subsidized rates — “for the bowl called New Orleans.” Nelson bemoaned one Tampa, Fla., resident whose flood insurance rates are jumping from $4,000 to an unaffordable $44,000 annually.

The Homeowner Flood Insurance Affordability Act would delay by about four years the insurance hikes on primary residences — excluding properties that suffered repeated flooding — that have received “grandfathered” lower premiums. The legislation also would delay the property sale “trigger” so that homes and businesses sold after July 6, 2012, do not see dramatic automatic insurance increases.

The legislation does not address rate hikes though for businesses, secondary vacation homes and homes that repeatedly flooded that were all grandfathered into artificially lower premiums for flood insurance before flood maps were created. Such affected policyholders will see 25 percent annual premium increases over a few years.

The case for obstruction

Neugebauer is among those arguing that there is a lot of “fiction” among the rate hike horror stories. He argued that the federal government should not continue to subsidize those choosing to live in areas with much greater flood risks.

“We do know that there are some people out there who are going to experience higher premiums,” Neugebauer said at a recent hearing. “But, you know, that was the purpose.”

The free market-supporting, nonprofit R Street Institute in Washington also has helped lead the effort to prevent undoing the NFIP “reforms” of 2012.

“(The) bill proposes an absurd and protracted process — four years, at minimum — of studies, recommendations, hypothetical and nonamendable future pieces of legislation, and then, for good measure, an extra six months of ramp-up, before a single property would see their rates adjusted to reflect their real risks,” R Street Senior Fellow R.J. Lehmann said. “The unstated, but quite clear goal of this convoluted process is simply to gut any reform until the NFIP’s existing statutory authority would be scheduled to expire.”

“By keeping rates far lower than the private market ever would for some flood-prone properties, the program encourages development in ways that endanger lives and harm the environment,” added R Street President Eli Lehrer. “That’s why it’s disturbing that so many in Congress — including some who stand firm against government meddling in other areas of the economy — have embarked on an effort to undo modest reforms that actually move the program in the right direction.”

The counter-argument

Greater New Orleans Inc. President and CEO Michael Hecht, who is helping to lead the coalition of business and real estate groups to change the law, said such arguments are misguided and “woefully disingenuous.”

“If we’re just talking about vacation homes on beaches and barrier islands, then that’s a legitimate argument,” Hecht said.

But, in Louisiana, this is about helping to support the “working coast” that supports much of the nation’s seafood and energy industries, as well as much of the nation’s imports and exports.

“It’s a public good,” Hecht said. “It benefits the entire country to have people living near the coasts. Commerce happens near water, so it’s vital to the economy of America.”

There will be an “economic disaster,” Hecht said, “when people suddenly find themselves being thrown out of their homes and businesses.”

As Landrieu has repeatedly noted, all 50 states are impacted because all of them have existing or proposed flood maps, whether they are on the coast or near inland waterways.

Part of the problem is with Congress, Hecht said, but the Federal Emergency Management Agency implementing the flood maps and rate hikes share in the blame.

FEMA does not account for locally funded and built levees and pumping stations in its maps and is implementing the hikes before it has completed an affordability study or pilot programs to factor in local levees. FEMA has blamed a lack of funding and the wording of the 2012 legislation, and argued that more congressional action is needed.

“If we simply had accurate maps from FEMA, that would take care of 80 percent of the problems we have,” Hecht said. “We have a rollout order problem.”

Moving forward in the House

If Landrieu is correct and the Senate approves the rate hike delays as soon as January, then the focus will shift back to the House.

The lower chamber has approved a one-year rate hike delay, sponsored by Rep. Bill Cassidy, R-Baton Rouge, that was attached to a Homeland Security funding bill. The problem is that all the appropriations bills were sitting in limbo until Congress finally reached the two-year budget agreement earlier this month.

“I am optimistic that we will bring relief to policyholders next year,” Cassidy said in a prepared statement. “I will continue to engage with leadership, the Financial Services Committee and members on both sides of the aisle in both the House and Senate to ensure they understand the importance of relief from catastrophic flood insurance rate increases.”

While Cassidy supports the Homeowner Flood Insurance Affordability Act, he also filed a new bill this month that is less comprehensive and would delay rate hikes until March 2015 for property owners who find themselves in greater flood risk assessment areas on flood maps. Most of the FEMA mapping is about a year from being completed, so Cassidy’s bill amounts to delaying hikes by a matter of months, not years.

The goal was to get something — even if it is less effective — passed by the House before the end of the year, but the GOP leadership opted instead to recess for the year without considering Cassidy’s bill.

While his new bill had some bipartisan support, it also had some bipartisan opposition from other lawmakers, including Rep. Cedric Richmond, D-New Orleans, who are concerned that Cassidy’s bill would undermine the Homeowner Flood Insurance Affordability Act. Those backing Cassidy’s bill contended that something is better than nothing.

Speaking to the more comprehensive bill, Richmond said there will be opportunities for progress “early next year.” He noted the number of nearly 170 cosponsors is growing.

“As we continue to add cosponsors, support like that makes it less a question of ‘if,’ and more a question of ‘when,’ ” Richmond said.

But Rep. Steve Scalise, R-Jefferson, conceded that lawmakers may have to find some sort of middle ground.

“We’re still far apart on the long-term fix. We’re running into problems with that approach,” Scalise said of the Homeowner Flood Insurance Affordability Act, which he supports.

“We’re working on something that’s close to that approach,” Scalise said, noting ongoing talks with Hensarling, House Majority Leader Eric Cantor, R-Va., and others. “The negotiations themselves get complicated … We’ve got a number of options on the table; we just need to get something done.”

And the bottom line is this, Scalise added, “Somebody who played by the rules should not be faced with a 300 percent increase in their bills.”