Senate Small Business and Entrepreneurship Committee Hearing
Introduction
Chairman Vitter, and members of the
Here in
Background
Since 1968,
This strong partnership between
In 1994, with passage of the National Flood Insurance Reform Act,
In
Unintended Consequences
In 2012,
While most properties insured by the NFIP, including all new residential construction, already pay full-risk rates, just over 20% of existing NFIP policyholders receive subsidized rates, generally between 40 and 45% of the actuarial premium. Most of these subsidized structures are Pre-Flood Insurance Rate Maps (Pre-FIRM); that is, a property built before 1974 when the first Flood Insurance Rate Maps (FIRMs) were established.
Prior to BW-12,
Shortly after BW-12 was enacted, however, home owners and home builders started to see the unintended consequences of the legislation, especially on grandfathered or pre-FIRM properties.
First, any property that was sold was immediately subject to a full-risk rate, with the premium increasing by 25% each year until it reached the full actuarial rate. The potential buyer would get an unwelcome surprise at settlement, one that could even prevent the sale of the home if the rate increase was high enough to affect the buyer's ability to qualify for financing. In addition, all pre-FIRM and grandfathered policyholders were subject to a similar phase-in to the full-risk rate, but it would occur over five years, with premiums increasing by 20% annually.
Were it not for Congressional leadership through the enactment of HFIAA, NAHB estimated that the move from the 50% to the 30% threshold would have placed up to
After BW-12, more and more home owners were not only seeing drastic increases to their flood insurance premiums, they were also seeing major errors in the flood maps. NAHB and LHBA heard from builders across the country who were distraught over the dramatic rate increases. Due to problematic maps and remapping, many of which have expanded the limits of the floodplain, builders have reported associated rate increases that have priced prospective buyers out of their developments and forced the cancellation of sales negatively impacting the local economy.
Some members were seeing rates increase as much as tenfold over what the home owners were previously paying. For example, due to inaccurate maps, a
Legislative Fixes
Thankfully,
HFIAA reinstated the title of grandfathered properties, and the sale of pre-FIRM properties no longer triggered the immediate increase to full-risk rates. HFIAA also gave home owners a break by providing refunds to the eligible pre-FIRM property owners whose NFIP insurance rate premiums increased.
Thanks to Congressional leadership,
Under
Further, the mapping error concerns have been remedied. Under BW-12, policyholders and communities who had used their own personal funds to challenge FIRM maps. If the FIRM maps were proven to be erroneous, the policyholder or community not able to be refunded the full expense of challenging the FIRM map. Therefore, many FIRM maps went unchallenged. Under HFIAA,
To protect grandfathered properties,
HFIAA also helps remodelers and home owners affected by the change to the substantial improvement threshold in BW-12, which increased NFIP premiums. HFIAA restored the threshold back to its traditional level of 50% or more of the market value of the structure, rather than the BW-12 rate of 30%. This will help to allow existing homeowners to stay in their homes and make the necessary repairs and upgrades without the fear of also triggering unsustainable insurance rate hikes.
Challenges Moving Forward
Although many positive changes were enacted through HFIAA, some challenges with the NFIP remain. Home builders are particularly concerned about potential changes to the NFIP and flood mapping that could result from a recent presidential Executive Order (E.O.) that expands the definition of a floodplain. On
In addition to potential effects on the NFIP, NAHB has serious concerns about the impact to private construction, the regulatory uncertainty this will cause, and the lack of oversight and public input sought.
For nearly 40 years the floodplain has been defined as an area with a 1% chance of annual flooding and is otherwise known as the 100-year floodplain. This definition not only governs federal buildings, but is the basis for the NFIP. Now, with only the President's signature, the floodplain definition has been significantly expanded. Under E.O. 13690 and the FFRMS, each agency would be required to independently define floodplains using one of the following criteria:
. the best available climate-informed science;
. the freeboard approach (adding 2 or 3 feet of clearance above the base flood elevation); or
. 500-year floodplain (areas with a 0.2% annual chance of flooding)
Under BW-12,
Regulatory Uncertainty
According to
While the E.O. states that it will apply to "federally-funded projects," the original Executive Order and the FFRMS refer to "all federal actions." This is defined as "(1) acquiring, managing, and disposing of Federal lands, and facilities; (2) providing Federally undertaken, financed, or assisted construction and improvements; and (3) conducting Federal activities and programs affecting land use, including but not limited to water and related land resources planning, regulating and licensing activities." Putting aside the questions about the necessity for this E.O. and the ability of each agency to make such determinations, home builders are very concerned that these new definitions will be applied to projects well-beyond government buildings, directly impacting many private construction projects and indirectly impacting the NFIP.
While
NAHB is also concerned about the impact of the E.O. and the FFRMS on development that receives federal grant funding (e.g. rural development grants, community development block grants, etc.), financing (e.g. FHA new construction) and permitting (e.g. Section 7 consultation under the Endangered Species Act, 402 and 404 permits under Clean Water Act, etc.), as the definition of "federal actions" clearly includes these types of activities.
Oversight
This E.O. was put into place without any congressional oversight or public input. While some agencies may need to go through a public rulemaking to effectuate the new definition of floodplain, some will be able to change their internal policies without any outside input. The FY 2015 Omnibus Legislation required
This new policy will drastically impact economic development across this country. Should the 500-year definition be adopted, the expansion of the floodplain could result in as much as a 20% increase in the floodplain area beyond the 100-year floodplain. No one knows the significance of the "climate-informed science approach." The Administration is putting the "cart-before-the-horse" in its attempt to implement the FFRMS before providing the necessary floodplain maps.
Home builders across the country hope that just as
Conclusion
I would like to thank the Committee for the opportunity to testify today, and specifically Chairman Vitter for his leadership on this issue. Forums like this one provide an important opportunity for members of the community to engage in the issues that impact our neighbors and local economy. Home builders have supported common sense changes to the NFIP through BW-12 and HFIAA, and we urge
n1 U.S. General Accounting Office. (2013, July).
Read this original document at: http://www.sbc.senate.gov/public/?a=Files.Serve&File_id=976aba27-f955-4e20-906f-fcc19adac345
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