Congress May Need to Throw a Lifeline to Flood Insurance Program

Money running out because of season’s hurricanes

Homeowner James Wade removed damaged items on Wednesday as floodwaters from Hurricane Irma receded in Middleburg, Florida. Flooding in town from Black Creek topped the previous high water mark by about seven feet and water entered the second story of Wade's home. (Photo by Sean Rayford/Getty Images)

Congress may have to act to prevent a federal flood insurance program that is already $24.6 billion in debt from running out of money because of flooding caused by this season’s hurricanes.

The National Flood Insurance Program is likely to lack sufficient funds to pay out all flood damage claims caused by Hurricane Harvey in Texas, according to estimates by the Federal Emergency Management Agency, which administers the program.

FEMA estimates it will pay $11 billion in flood claims for Harvey to National Flood Insurance Policyholders in Texas, Roy E. Wright, the deputy FEMA administrator in charge of the program, told reporters in a briefing. The estimate, which doesn't include cost projections for Hurricane Irma in Florida, exceeds the roughly $1.5 billion FEMA says the National Flood Insurance Program has on hand.

Congress appropriated $7.4 billion for FEMA in an emergency measure enacted last week. But that money doesn't go to the flood insurance program. Most of the rest of the $15.25 billion emergency relief package would go to the Small Business Administration and the Housing and Urban Development Department.

The flood insurance program’s $24.6 billion in debt, caused largely by damage claims from hurricanes Katrina and Rita in 2005 and Superstorm Sandy in 2012, leaves FEMA with the ability to borrow $5.8 billion from the Treasury to cover claims. Congress would need to increase the borrowing limit for the program if those funds aren’t adequate, lawmakers say.

“Even though we reauthorized it for three months, and extended it, it’s gonna run out of money probably in October,” Rep. Tom MacArthur, R-N.J., said. “They’ve got $1.5 billion in hand, maybe $5.5 billion left in borrowing authority, and then they’re going to be coming to Congress saying they need more.”

MacArthur, a former insurance executive whose New Jersey district was hit by Sandy, said he wants to ensure the program has the funds to pay out the claims.

“We’re going to have to give it more money. I don’t know what form that will take,” he said, adding that extra funds “must come with reform.”

Congress last week also extended the authorization for the National Flood Insurance Program until Dec. 8, pushing back the expiration date from Sept. 30. The deal to extend the program did not include any provision to increase the borrowing limit or to provide additional funds.

The Congressional Budget Office estimates the National Flood Insurance Program receives roughly $3.5 billion from policyholder premiums annually. These premiums can be supplemented by additional funds from appropriations, FEMA grants, and borrowing.

House Financial Services Chairman Jeb Hensarling, R-Texas, a long-time critic of the flood insurance program, said the funding shortfall should be a wake-up call to legislators to “get serious” about addressing the program’s financial solvency.

“The program can’t meet the needs of flood victims without another bailout,” Hensarling said in a written statement. “To continue as is, with no reforms, is a slap in the face to both homeowners who depend upon it and hardworking taxpayers who have to bail it out once again. The NFIP in its current form is unsustainable and perverse.”

Hensarling says the NFIP is a federal subsidy that encourages construction in flood zones. “After Harvey and Irma, it would be insane for the federal government to simply rebuild repetitive loss homes in the same fashion, in the same place,” he said. 

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