{ "id": "R43395", "type": "CRS Report", "typeId": "REPORTS", "number": "R43395", "active": false, "source": "EveryCRSReport.com", "versions": [ { "source": "EveryCRSReport.com", "id": 428885, "date": "2014-03-03", "retrieved": "2016-04-06T23:05:25.807223", "title": "Efforts to Delay the Gradual Elimination of Flood Insurance Premium Subsidies", "summary": "On July 6, 2012, President Barack Obama signed into law the Biggert-Waters Flood Insurance Reform Act of 2012 (Division F, Title II, P.L. 112-141; 126 Stat. 918) to reauthorize the National Flood Insurance Program (NFIP) through September 30, 2017, and make significant program changes designed to make the program more financially stable. To achieve long-term financial sustainability and ensure that flood insurance rates more accurately reflect the actuarial risk of flooding, the new law gradually phases out subsidized premiums and grandfathered policies for approximately 19% (or about 1.1 million policyholders) of the program\u2019s total number of policyholders. \nUnder the Biggert-Waters Act, the Federal Emergency Management Agency (FEMA) began imposing premium rates based on the property\u2019s \u201celevation rate,\u201d which, in turn, is based on the property\u2019s lowest floor elevation relative to the Base Flood Elevation (BFE) for existing homes and businesses built prior to the community\u2019s initial Flood Insurance Rate Map (FIRM). Since 1973, these so-called pre-FIRM structures had been shielded from higher premium rates. The National Flood Insurance Act of 1968 (P.L. 90-448; 82 Stat. 572) included a provision for subsidizing pre-FIRM structures by charging less than full risk-based premiums for flood insurance because their construction took place before the application of the NFIP construction standards. These structures are also exempt from the NFIP\u2019s mitigation requirements unless they become substantially damaged or substantially improved.\nThus, with the elevation of the property now being a factor in the rating process, owners of certain properties\u2014that is, those property owners with federally insured mortgages residing in government-designated, flood-prone areas\u2014now face relatively larger flood insurance premium rate increases. Importantly, this transition toward full-risk premium rates for generally older and more risky properties has occurred before FEMA\u2019s completion of a congressionally mandated affordability study\nThe impact of moving to full-risk premiums by eliminating the pre-FIRM premium subsidies, as required by the Biggert-Waters Act, is being felt in virtually all 21,000 NFIP communities across the nation. The impact of elimination of the subsidies on non-principle residential properties (i.e., second homes), business properties, and new or lapsed policies has been particularly felt in communities with a relatively high proportion of high-risk flood-prone pre-FIRM properties. In addition to its impact on property owners, the elimination of the subsidy affects local community economic development as well as debates concerning how to equitably distribute the burden of recovering from flood events.\nOpponents of eliminating subsidized rates argue that the Biggert-Waters Act does not explicitly address the affordability concerns of existing policyholders in high-risk flood zones and FEMA does not have sufficient data on policyholders\u2019 ability to pay; however, the agency has begun implementing sharply higher flood insurance rates for some policyholders.\nProponents of eliminating subsidized rates maintain that Congress explicitly found that ensuring the long-term financial stability of the NFIP is in the public interest and the Biggert-Waters law seeks to further this goal by transitioning subsidized rates to actual risk-based rates. Removal of premium subsidies and grandfathered policies would reduce taxpayer costs associated with a fiscally unsound government insurance program while reducing the arguably hidden financial incentives that encourage building in flood-prone and environmental sensitive coastal areas.\nThe key policy questions facing Congress with respect to the post-reform NFIP issues include\naddressing the affordability issue;\ndeciding whether, how, and when to privatize flood risk;\nexploring options for improving flood risk analysis and maps; and \nfinding innovative new approaches to financing the nation\u2019s increasing exposure to hurricane-induced catastrophic floods and coastal hazards.\nOn January 17, 2014, President Barack Obama signed into law the Consolidated Appropriations Act, 2014 (Division F, Title V, Section 572 of P.L. 113-76), that prohibits FEMA from implementing Section 100207 (the \u201cgrandfather\u201d provision) of the Biggert-Waters Act, codified at Section 1308(h) of the 1968 Act, during FY2014. The Omnibus requires FEMA to cease any current planning and development for Section 100207. However, according to FEMA, because Section 100207 does not relate to changes to flood insurance rates that have already taken place, and the Omnibus does not roll back any rate increases that have already occurred, the effect of Section 572 of the Omnibus is that FEMA would not implement Section 100207 until 12 to 18 months after the start of FY2015. FEMA indicated that the agency will continue to map flood risk as authorized by current law.\nOn January 31, 2014, the Senate passed S. 1926, the Homeowners Flood Insurance Affordability Act of 2014, to delay the increase in rates for six months after the later of the date on which FEMA proposes the draft affordability framework or the date on which FEMA certifies that the agency has implemented a flood mapping approach that employs sound scientific and engineering methodologies to determine varying levels of flood risk in all areas participating in the NFIP. The report to Congress would assess \u201cmethods for establishing an affordability framework for [NFIP], including methods to aid individuals to afford risk-based premiums under [NFIP] through targeted assistance rather than generally subsidized rates, including means-tested vouchers.\u201d\nSeveral other bills\u2014H.Amdt. 121 (Cassidy) of H.R. 2217 (Carter), H.R. 2199 (Richmond), H.R. 3370 (Grimm), H.R. 3511 (Capuano), and S. 996 (Landrieu) have been introduced to delay implementation of the rate structure reform provisions of the new law and provide additional funding for the completion of the affordability study.", "type": "CRS Report", "typeId": "REPORTS", "active": false, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "http://www.crs.gov/Reports/R43395", "sha1": "a728fd4f555f2026e429325090fee05c052dc0da", "filename": "files/20140303_R43395_a728fd4f555f2026e429325090fee05c052dc0da.html", "images": null }, { "format": "PDF", "encoding": null, "url": "http://www.crs.gov/Reports/pdf/R43395", "sha1": "6db65958a3348d45293a1502b1956e4a89a35ee3", "filename": "files/20140303_R43395_6db65958a3348d45293a1502b1956e4a89a35ee3.pdf", "images": null } ], "topics": [] } ], "topics": [ "Appropriations", "Economic Policy" ] }