Congress eyes $16 billion in debt relief for National Flood Insurance Program, without strings attached

WASHINGTON — A multi-part package of federal hurricane relief money hitting Congress this week will wipe away $16 billion in National Flood Insurance Program debt but won’t include a number of changes to the program requested by the White House.

The debt relief will free up money to pay an avalanche of claims from NFIP policyholders in the wake of Hurricanes Harvey, Irma, Maria and Nate without ballooning interest payments owed by the program. The federally run program has eaten through its cash reserves and nearly exhausted its current authority to borrow more from the U.S. Treasury to pay flooded policyholders, leaving it in danger of running out of money.

Louisiana’s congressional delegation welcomed the debt relief, a measure a number of Louisiana leaders have lobbied for but had seen only limited support in Washington until now. The bill also includes about $20 billion in other federal disaster funding, most of it for the Federal Emergency Management Agency, to respond to a series of natural disasters in recent months.

White House budget director Mick Mulvaney had also asked lawmakers to tie a number of sweeping changes — which alarmed several Louisiana lawmakers and interest groups — to the debt relief. Among the changes: rules to bar any newly constructed buildings in flood plains from the program, block any new flood insurance policies for commercial buildings and hike premiums for homeowners to “risk” rates.

None were included in the bill, which leaders in the U.S. House of Representatives released Tuesday night. U.S. Sens. John Kennedy and Bill Cassidy, both Louisiana Republicans, criticized Mulvaney’s proposals, as did Congressmen Garret Graves, R-Baton Rouge, and Ralph Abraham, R-Alto.

House Majority Whip Steve Scalise, R-Jefferson, said at a Wednesday morning leadership press conference that the disaster relief package is needed to provide the resources needed to respond to a catastrophic 2017 hurricane season and deadly wildfires in California.

“If Congress doesn’t provide this relief, the NFIP would be prohibited from paying any claims to any policyholders, regardless of where they are or why they are filing the claim, and that would be a major problem for lots of people in Louisiana,” said Chris Bond, a Scalise spokesman.

“It’s definitely a win for us,” said Cailtin Berni, vice president of policy and communications for Greater New Orleans Inc., a regional economic development group that has focused extensively on flood insurance issues.

Berni had raised concerns that Mulvaney’s suggested changes would effectively end construction in large swaths of flood-prone south Louisiana, make flood insurance unaffordable for many or even boot homeowners out of the program.

The fight over changes to the National Flood Insurance Program is far from over, however. Congressional authorization for the government-run program expires in early December, meaning lawmakers in Washington are under the gun to settle disputes and agree on an NFIP extension.

A number of hardline budget hawks — led by U.S. Rep. Jeb Hensarling, R-Texas, who chairs the House committee that oversees the NFIP — have repeatedly backed changes designed to shrink the program, recalculate premiums to more accurately reflect flood risks and kick properties that have flooded more than once out of the program.

Those changes would likely lead to significantly higher costs for residents of flood-prone areas — including Louisiana — or simply place flood coverage out of reach of property owners in areas at high risk of flooding.

Many Louisiana property owners enjoy grandfathered flood insurance rates, meaning their risk of flooding — and accompanying premiums — are based on their property’s elevation above the base flood level at the time it was built, not on current standards. That means owners of old homes, especially in flood plains, generally enjoy lower premium prices than they’d have to pay based on updated flood maps.

Excluding so-called “multiple-loss properties” from the program — buildings that have flooded more than once — could also hit areas of Louisiana hard. Owners of homes and commercial structures that took on water during previous hurricanes — such as Katrina in 2005, Ike in 2012 or the 2016 Baton Rouge-area floods — would be at risk of losing access to flood insurance coverage.

Hensarling and his allies have argued the changes are needed to put the NFIP on sounder financial footing.

A number of environmentalists, meanwhile, have complained that the NFIP effectively subsidizes new development in flood plains that destroy wetlands and leave areas more vulnerable to natural disasters.

But significant jumps in the cost of flood-insurance premiums — or loss of access to coverage — would likely hit homeowners hard in the pocketbook by pushing down home values.

Louisiana lawmakers have generally pushed for changes to the NFIP that would protect “grandfathering” for homeowners and expand the number of policyholders paying into the program.

Berni said she’d like to see further debt relief for the program when lawmakers act on it in December. The NFIP had remained in the black until 2005, when the staggering losses from Hurricane Katrina overwhelmed the NFIP’s cash and left it roughly $17 billion in debt.

Subsequent costly disasters — including Hurricane Sandy, which caused extensive flooding in New York and New Jersey in 2012 — further hiked the debt in the program.

Interest payments on the debt now exceed $400 million each year, paid to the U.S. Treasury out of policyholder premiums. Berni said that money could be used to pay out claims and put the program on sounder financial footing.

Berni also noted that much of Katrina’s destruction came as the result of federal levee failures. She argued that saddling NFIP policyholders with the costs of an engineering disaster was unfair and bad policy.

Mulvaney, the White House budget director, pegged projected NFIP payouts from Hurricanes Harvey, Irma and Maria at $16 billion — the same amount of debt forgiveness requested in the emergency disaster bill.

If those projections prove accurate, the NFIP would be left with the same debt load once claims are settled and paid.

The House is slated to vote on the disaster bill sometime Thursday. If passed, the Senate would then consider it next week, once senators return from a weeklong break.

“We need more people buying flood insurance, but some of the proposed changes (from the White House) would actually discourage that from happening and would be detrimental to Louisiana communities that rely on affordable flood insurance to help them recover from disasters like we faced last year,” said Abraham, the Louisiana congressman, on Wednesday. “A lot of these issues will be addressed as Congress works to reauthorize the NFIP in December, so I’m glad we didn’t attach hasty changes as riders on important bills like this.”

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