July 8, 2012 14:18
President Obama signed the Moving Ahead for Progress in the 21st Century Act, aka "MAP-21", this past Friday. Support was broad: the House voted 373-52; in the Senate it was 74-19 in favor. The bill is a potpourri. The bulk of the enactment addresses surface transportation topics, but it also includes measures to keep down student loan interest rates, overflights of the Grand Canyon, sport fish restoration, and extensive reform of the National Flood Insurance Program (including significant climate change provisions). Interestingly, the White House eschews both statutorily-provided titles and chooses a simpler nomenclature, the Transportation and Student Loan Bill. According to the White House, the Bill "accomplishes two important goals -- keeping thousands of construction workers on the job rebuilding America's infrastructure and preventing interest rates on federal student loans from doubling."
These features are important, but we think the bill's significance will come from the unheralded feature: reform of the National Flood Insurance Program (NFIP). Reform is sorely needed. As stated on the FEMA "Rethinking the NFIP" website, "The NFIP was designed as a means of discouraging unwise occupancy of flood prone areas, yet occupancy of these areas has expanded since 1968. Additionally, as risks continue to increase, the cost of flood insurance mirrors that increase, making it unaffordable for many Americans." Criticism of the NFIP was nearly universal following Hurricane Katrina. The program was underfunded - premiums came nowhere near the amount needed to cover claims (the NFIP is over $15 billion in debt). Floods were repeatedly damaging the same properties, which had been rebuilt sometimes three or four times in the same location. Fewer than half the properties at risk were covered; in some areas uninsured properties were the substantial majority. The Washington Post in a 2005 editorial called for compulsory insurance and the end of subsidized rates. A Wall Street Journal article reached similar conclusions. Notwithstanding, reform could not be obtained. The NFIP limped along living (and, on occasion, even dying) on borrowed time. Since 2008, it has been extended no fewer than 15 times. Four times the program lapsed as lawmakers could not come to terms.
Somehow, however, with the most recent extension due to expire on July 31, reformers prevailed and the act was revised and extended for another five years to September 30, 2017. The reform act, known as the Biggert-Waters Flood Insurance Reform Act of 2012 (sec. 100201)), can be found at Title II of Division F (Miscellaneous) of MAP-21.
The reforms are extensive (and they will leave many wondering how any of these reforms were opposed in the first place). Among other things, the bill provides:
Subsidies for many properties are being phased out. For example, a "severe repetitive loss property" (i.e., where payments for flood-related damage exceed fair market value of the property) is no longer eligible for a subsidized rate (sec. 100205(a)(1)).
In setting rates the principles and standards of the American Academy of Actuaries and the Casualty Actuarial Society are to be followed, including "an estimate of the expected value of future costs" (sec. 100205(b)(3)). The "average historical loss year" is to include "catastrophic loss years" (suggesting that previous averages did not include catastrophic losses, which is a calculus many would like to use with their insurers) (sec. 100211).
Insurance premiums can now rise up to 20% per year (sec. 100205(c)). 10% was the earlier cap on premium increases.
Multifamily properties (greater than 4 residences) can now purchase NFIP policies (sec. 100204).
There are now minimum deductibles for flood claims (sec. 100210)..
A Technical Mapping Advisory Council is established to address flood map revision and maintenance (sec. 100215(a)).
A variety of studies are required: among others, a study of the addition of business interruption and additional living expenses coverages; a report on graduated risk behind levees; a report on privatizing the NFIP; a report on "nationally recognized building codes as part of the floodplain management criteria", and a study on participation in, and affordability of, the NFIP (secs. 100231, 100232, 100233, 100235, 100236).
In light of the politicization of the climate change topic, perhaps the most astounding of all the changes in the NFIP is the acknowledgement in the bill that climate change is a critical consideration in establishing a program that works. (We and others have called for this for some time, see Underwater? What Climate Change Means for a Loan Portfolio Near the Flood Plain). The Technical Mapping Advisory Council must report to the FEMA Administrator within one year of enactment on the following:
100215(d) Future Conditions Risk Assessment and Modeling Report-
(1) IN GENERAL- The Council shall consult with scientists and technical experts, other Federal agencies, States, and local communities to--
(A) develop recommendations on how to--
(i) ensure that flood insurance rate maps incorporate the best available climate science to assess flood risks; and
(ii) ensure that the Federal Emergency Management Agency uses the best available methodology to consider the impact of--
(I) the rise in the sea level; and
(II) future development on flood risk; ...
And this report cannot just sit on the shelf. The Administrator is obligated to, "as part of the ongoing program to review and update National Flood Insurance Program rate maps ..., shall incorporate any future risk assessment submitted [in the required report] in any such revision or update." (sec. 100215(d)(2)).
We note that the statute speaks definitively about sea level rise. It is not something indefinite; rather, the report must consider the impact of the rise in the sea level. We also note that "best available climate science" is standard phrasing at NOAA, and the National Park Service, as well as among NGOs. How it will fare in the ultimate report is, of course, unknown. But we do not expect the effects of climate change will be shouted down, turned away or buried. At the end of the day, the conclusions in the report will influence how money is to be spent and who will profit. The best way to figure that out is to use the best information. Certainly some will have an interest in obscuring the best available science, but the bipartisan support of the bill suggests that many more may have an interest in just getting the best answer.