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Doing the Wrong Thing

Congress prepares to undo one of its few worthy reforms.

Dec 16, 2013, Vol. 19, No. 14 • By ELI LEHRER
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This isn’t to say that the reforms have no flaws or couldn’t use some changes. A handful of people of modest means who are unexpectedly remapped into much higher risk areas may be socked with larger bills they can’t afford to pay and should probably get some temporary relief as long as they occupy their homes. More seriously, a longstanding rate-setting practice of ignoring levees that don’t provide protection against 100-year floods has resulted in some people behind “decertified” or “uncertified” levees being charged much higher rates than they should be. (Developers and others blocked an effort to fix this, because it would have also required more of those behind the levees to purchase coverage.) Other broader changes—even rate freezes for people of modest means who own their own homes—probably should be part of a negotiation.

But not every problem has a government solution. Even the truly high rates—which will likely be in the neighborhood of $10,000 rather than the $30,000 figures FEMA has thrown around—may be more an opportunity than anything else. They can be a catalyst for serious discussions about mitigation or buyouts for those who face the enormous risks that justify extremely high rates. Moreover, as higher rates have rolled out, at least a half-dozen companies around the country have announced plans to go into business in competition with the government’s program. While they won’t charge subsidized rates, many of them may be able to underprice the government on unsubsidized coverage.

On balance, the reforms under Biggert-Waters are incredibly modest: More than half of the properties most at risk won’t see rate increases even if all of the reforms go into force. The private sector’s role in flood insurance for homeowners will grow only slightly. Anyone looking to privatize flood coverage in a serious way will have to make further reforms when Biggert-Waters expires in 2017.

Still, each year that subsidies for development in flood-prone areas continue, more people will move into harm’s way. As the backlash to the reforms demonstrates, once they are there, it is beyond difficult to get them out.

This has very real human costs: Undoing a modest phaseout of flood insurance subsidies almost surely would mean plucking more people off of roofs with helicopters during the next massive flood or seeing more of them perish. And things appear certain to get worse. Ocean levels have been rising for at least 10,000 years, and climate change may accelerate this process in the future.

The real problem, however, isn’t the flood insurance program itself, but rather what it represents. In the context of a $3.5 trillion budget, the NFIP’s $25 billion of unpayable debt isn’t a fiscal calamity. But Congress’s seeming inability to stick with modest reforms—even when they produce far more winners than losers—proves how hard it is for the federal government to do anything that improves the nation’s finances. If members of Congress can’t save flood insurance reform, it’s hard to believe they’ll ever be able to fix far larger fiscal ills.

Eli Lehrer is president of the R Street Institute.

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