Some in Louisiana point to costly drastic insurance policy changes in White House hurricane relief request

WASHINGTON — Several Louisiana lawmakers and interest groups are sounding the alarm over major changes to the National Flood Insurance Program included in the Trump administration’s request for emergency hurricane relief money.

The White House is asking Congress to bar the NFIP from issuing new policies to cover new homes or business in any flood zone, a provision that would hit coastal areas of Louisiana particularly hard, along with several other significant changes to the federally run program.

White House budget director Mick Mulvaney, in a letter to Senate Majority Leader Mitch McConnell, R-Kentucky, says the NFIP is “simply not fiscally sustainable in its current form” and outlines several other potentially significant changes to program rules.

Mulvaney called for lawmakers to maintain subsidized insurance rates for low-income homeowners — but called for pairing that with “accelerated premium increases for policyholders who can afford to pay risk-based rates.”

The White House is also pushing for more authority for the government to cancel policies on properties that have flooded more than once.

The letter doesn’t lay out exact details of the proposed federal policy changes. A bill to provide hurricane relief and to address the National Flood Insurance Program’s cash shortfall is expected to be introduced next week.

But Mulvaney’s letter hints at several changes that could lead to much higher rates for many Louisiana homeowners — or lead some to be booted from the program altogether — and advocates for changes that members of Louisiana’s congressional delegation have fought against.

Caitlin 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, said excluding any newly constructed buildings in flood zones — designated “A” or “V” zones on FEMA flood maps — from the program is her biggest concern.

Significant swaths of south Louisiana fall in those zones, Berni noted. Exclusion from NFIP would make it nearly impossible for would-be home buyers in those areas to obtain a mortgage and would effectively stop any new development or construction in those zones.

“That’s a non-starter for us,” Berni said.

Berni noted that newly constructed homes in flood zones are actually at lower risk of flooding because of more stringent elevation requirements than existing properties in the same areas which have risk and elevation levels that are grandfathered in.

Berni also said she’ll be watching closely for the details in the bill, which is expected to be drafted and publicly released sometime next week.

Just what changes Mulvaney has in mind by “accelerated premium increases for policyholders who can afford to pay risk-based rates” isn’t entirely clear. Many homeowners in Louisiana enjoy grandfathered rates, meaning their risk of flooding — and premiums — are calculated based on the base flood elevation at the time the property was built and not on current elevations, which are usually higher.

Previous proposals to phase out grandfathering for NFIP policyholders, such as under the since-rolled-back Biggert-Waters Flood Insurance Reform Act of 2012, would’ve sent premiums for many homeowners in flood zones skyrocketing, Berni said.

If flood insurance premiums for a home rise — or if federal authorities boot the property from the program altogether — its value is almost sure to drop.

Similar provisions to hike premiums to “risk rates” and to exclude categories of homeowners from the program have been put forward previously by a handful of House Republicans, including U.S. Rep. Jeb Hensarling, R-Texas, who chairs the committee that oversees the flood insurance program.

Budget hawks like Hensarling have pointed to the program’s debt as a sign the program is fiscally unsustainable and have pushed for the federal government to get out of the flood insurance business.

The Trump administration’s letter also proposes changing rules to make it much easier for private insurance companies to offer flood insurance policies for homeowners. Louisiana lawmakers have embraced that idea in theory — but expressed deep concerns that private companies would cherry pick the lowest-risk properties, sucking away premium dollars and leaving the NFIP in worse financial shape.

The White House’s proposals on flood insurance aren’t an entirely bitter pill for NFIP policyholders in Louisiana: The Trump administration proposes forgiving $16 billion in NFIP debt in order to free up money to pay new claims from hurricanes Irma, Harvey and Maria.

Tens of billions of dollars in expected claims following massive damage from hurricanes Harvey, Irma and Maria this year are expected to swamp the National Flood Insurance Program. The already debt-laden program has nearly exhausted its cash reserves and congressional authority to borrow money, even as new claims from policyholders continue to pour in.

U.S. Rep. Garret Graves, R-Baton Rouge, said the only feasible alternative to forgiving part of the debt would be to allow the program to borrow billions more from the U.S. Treasury.

That, Graves noted, would mean policyholders would have to make ballooning interest payments on the NFIP’s debt. NFIP policyholders already pay more than $400 million in interest to the U.S. Treasury on the program’s roughly $30 billion debt. Borrowing to pay Harvey, Irma and Maria claims could knock that figure up to $1.5 billion, Graves said.

“That’s artificially jacking up flood insurance supplemental payments,” Graves said, calling the interest payments “an injustice.”

The NFIP had remained solvent and in the black until 2005, when the massive destruction caused during Hurricane Katrina wiped out its cash reserves and forced the program to go about $17 billion in debt to pay off claims.

Graves, Berni and others in south Louisiana have argued that much of those claims stemmed from massive federal levee failures and not the kinds of flood risks factored into NFIP premiums.

Sen. John Kennedy, R-Madisonville, said Mulvaney’s proposals would price families out of their homes.

“I am going to fight the inclusion of this language,” Kennedy added. “Owning a home is part of the American dream. We can’t put that dream out of reach.”

Sen. Bill Cassidy, R-Baton Rouge, said in a statement about Mulvaney’s proposal that while he is “encouraged by provisions that would increase affordability … there are some provisions we have concerns about.

“We look forward to working with the administration to find something which strengthens the program and increases the accountability, affordability and sustainability,” Cassidy said.

Graves, the Baton Rouge congressman, said he’s already spoken with Republican leaders in the House of Representatives about his concerns about portions of the White House proposal.

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