National Flood Insurance Program

July 26, 2018

The National Flood Insurance Program is a national embarrassment, and everyone in this building knows it. It is fiscally unsustainable because it is structurally unsound.

And yet, here we are again, for the seventh time in six years, considering a so-called “straight” reauthorization. “Straight.”

That’s what Washington calls it when Republicans and Democrats, after burning the mid-day oil for two-and-a-half days a week for a few months, decide that a dysfunctional program $20 billion in debt is in fact perfect. And so we’re planning to rubber-stamp a continuation of its status quo.

Swamp-talk aside, Mr./Madam President, this is the opposite of “straight.” It’s the definition of “crooked.”

Here are the facts.

The National Flood Insurance Program creates a government monopoly to insure some of the most expensive real estate in the world. We’re talking about homes and home-owners that the private sector would be falling all over itself to insure.

The incentives are there for flood insurance to be a vast, profitable industry creating jobs and opportunity for thousands of Americans. But no, in our unearned but infinite confidence, Congress has assured the American people, “We got this.”

Except we don’t.

Congress’s answer to private insurance is $20 billion in debt, mere months after receiving a $16 billion taxpayer bailout.

Why is NFIP losing money faster than Congress can spend it?

Because the program doesn’t charge policy-holders market rates for their insurance. It offers them a special, below-market rate, despite the fact that we know flood plains are dangerous. That’s why we call them flood plains and not puppy-dog-and-ice-cream plains.

We also know, for a fact, that the subsidized premiums will lead inevitably to shortfalls debt and taxpayer bailouts.

Here one might recall the old quip that insanity is “doing the same thing over and over and hoping for different results.” But Congress isn’t insane. We know exactly what we’re doing and why.

Recall, the last time NFIP was reformed was six years ago, in its 2012 reauthorization. That bill, for the first time in a long time, reined in some of the program’s worst distortions. For reformers on the left and right, it was a sign of hope.

The problem was the reforms worked. NFIP’s artificially low premiums started to climb toward reality-based levels. We couldn’t have that. So in 2014, Congress stepped in and repealed many of those reforms.

That is the broken status quo we are being asked to perpetuate today. If this bill were any less serious it would be written in crayon.

The question is “Why”?

If the Flood Insurance Program is so obviously and terribly flawed, Mr./Madam President, why is it so resistant to reform? The answer is that like most inexplicably durable federal programs, it quietly serves the interests of the well-to-do at the expense of working- and middle-class families.

Proponents of the program would have us believe that NFIP is essential to protecting innocent victims who just happen to live in low-lying communities, and they can’t afford flood insurance. But this argument is absurd. First of all, if home-owners can’t afford to insure their homes, then in reality they can’t afford their homes.

Second, many of the areas Washington calls flood plains are really just property near water. Residences there are expensive for lots of reasons, but any realtor can tell you the biggest one is “location, location, location.”

These homes are expensive because lots of people want to live there, among them wealthy people who bid up the price. Wealthy people, Mr./Madam President, is another way of saying “people who can afford high-risk insurance premiums without taxpayer subsidies.”

In fairness, other flood plains are not home to million-dollar beach houses, but simply normal neighborhoods in low-lying locales.

But in either case, the potential for flooding makes living in these areas extremely dangerous and expensive.

So, in both cases, it’s unfair to ask taxpayers to make expensive, dangerous homes – 25 percent of which are vacation homes – artificially more affordable. It’s unfair, and unsustainable. The failure of the Flood Insurance Program is not an economic theory or ideological speculation – it is a fact.

No amount of money will change that. The problem with NFIP, as with almost all wasteful federal programs, is not the price-tag, but the policy. It doesn’t work as currently structured because it can’t.

Yet, despite decades of failure and folly, NFIP remains unchanged as nothing more or less than a subsidy for people to live in places we know are probably going to get flooded.

It’s tempting to call this a recipe for losing money. But as we know, Mr./Madam President, federal programs never actually lose money. Whether it’s waste, fraud, or abuse – someone, somewhere pockets it.

And in the case of the NFIP, as with so many other government programs, the winners are, well see for yourself.

According to the Congressional Budget Office, the median value of an NFIP-insured home is about twice that of the average American home.

A 2015 study by the University of Massachusetts-Dartmouth found “an inverse relationship between insurance premiums paid and total property value.” In other words, “The greater the average property value, the lower the average premium paid.”

A 2016 study from the University of Michigan Law School found data “suggesting that zip codes with higher-valued homes receive higher per-policy subsidies.”

We all know there are worthy and sympathetic beneficiaries of NFIP, as there are for every government program. But in the aggregate, the NFIP simply redistributes money from non-wealthy people to wealthy people, and to believe otherwise is to indulge in what might be called actuarial science-denial.

This isn’t alchemy. Actuaries already know how much flood insurance should cost. Of course, they also know how much Obamacare, Medicare, and Social Security are going to cost, and Congress is getting terrifyingly good at ignoring actuaries.

But as with our entitlement programs, politicians just want to pretend that NFIP can magically charge less, spend more, and not leave future taxpayers holding the bag.

Mr./Madam President, it’s long past time to set aside magical thinking. Neither former-President Obama, nor King Canute a thousand years ago, nor the NFIP today has the power to stop “the rise of the oceans.”

What we can do is prepare – through mitigation, through insurance, and through proven platforms of success.

Senators Heller and Tester have a bill that would allow private insurers to compete with NFIP. I support their bill, and can cite Utah’s successful embrace of private flood insurance as strong evidence in its favor.

Senators Crapo and Brown have a bill that would improve flood mapping and insist on “community preparation” for flooding as a condition of eligibility for NFIP coverage.

This is not too much for the American people to ask – either of their affluent, flood-prone neighbors, or of their sworn representatives in Congress.

Nor is the amendment I am offering. My amendment would leave the program, broken as it is, exactly the same, with one small change. It would cap eligibility for NFIP insurance at homes worth $2.5 million. Anything under that, fine, enjoy your cut-rate premiums. But taxpayers should not pay any amount of coverage for the top 1% that can afford a $2.5 million-dollar beach home.

All my amendment says is that people who can afford multi-million-dollar waterfront homes should be able to afford to insure those homes on their own.

With the stock market near all-time highs, with a corporate tax cut driving up profits, I think it’s an eminently reasonable time to ask multi-millionaires to insure their beach houses without the welfare assistance of hardworking taxpayers who make a fraction of their income.

I urge my colleagues to support this amendment.

I yield the floor.