House Financial Services Committee Issues Report on Repeatedly Flooded Communities Preparation Act

WASHINGTON, Aug. 17 -- The House Financial Services Committee issued a report (H.Rpt. 115-276) on legislation (H.R. 1558) to amend the National Flood Insurance Act of 1968 to ensure community accountability for areas repetitively damaged by floods. The report was advanced by Rep. Jeb Hensarling, R-Texas, on Aug. 15.

Excerpts of the report follow:

Purpose and Summary

Introduced by Representative Ed Royce on March 16, 2017, H.R. 1558, the "Repeatedly Flooded Communities Preparation Act," amends the National Flood Insurance Act of 1968 to ensure community accountability for areas repetitively damaged by floods.

Background and Need for Legislation

Floods are among the most frequently occurring and costly natural disasters. Most declarations of federal disasters by the Federal Emergency Management Agency (FEMA) are related to flooding. Yet despite the frequency and severity of losses that result from flooding, the private insurance market generally did not provide insurance for flooding; when it did, insurance for flood-related damage can be expensive because the properties most at-risk tend to be highly concentrated geographically and the potential risk of economic losses is extremely high.

To supplement the availability of flood insurance in the private market, Congress, in 1968, created the National Flood Insurance Program (NFIP), which is administered by FEMA and provides flood insurance to approximately 5.1 million policyholders across the country. In exchange for premiums paid by policyholders, NFIP makes federally backed flood insurance available to homeowners and other property owners (for example, businesses, churches, and farmers) in these communities.

Homeowners with mortgages held by federally regulated lenders on property in participating communities identified by FEMA to be in Special Flood Hazard Areas are required to purchase flood insurance (mandatory purchase requirement). NFIP coverage limits vary by program (regular or emergency) and property type (for example, residential or nonresidential). In NFIP's regular program, the maximum coverage limits for residential policyholders are $250,000 for buildings and $100,000 for contents. For commercial policyholders (that is, those with policies for nonresidential properties), the maximum coverage limit is $500,000 per building and $500,000 for contents owned by the building owner. There is additional coverage for contents owned by the tenants.

Residents and business owners in over 22,000 participating communities across the United States and its territories are able to buy NFIP flood insurance policies through insurance agents and companies that participate as third-party administrators in the "Write Your Own" (WYO) program. The WYO program allows private insurance carriers to issue and service government underwritten and taxpayer backed NFIP policies with no private financial liability from the insurer. Insurance companies that participate in the WYO program receive an expense allowance for policies they write and the claims they process. In addition, their agents earn a commission for the policies they sell. The federal government, however, retains responsibility for managing the risk and paying claims, as well as covering any litigation costs should a WYO insurer be sued in court.

Property owners can purchase flood insurance through the NFIP only if their communities participate in the NFIP. To participate in the NFIP, a community must agree to abide by certain statutory provisions intended to mitigate the risk of flooding, such as building codes that require new structures built in floodplains (high-risk areas) to be protected against flooding or to be elevated above the 100-year floodplain.

As of June 5, 2017, the NFIP has an outstanding debt of $24.6 billion borrowed from taxpayers, with roughly $1.1 billion available cash-on-hand and $5.825 billion remaining of its total temporary $30.425 billion Treasury borrowing authority. The NFIP's debt results primarily from its borrowing to pay claims relating to the Gulf Coast hurricanes in 2005 and Superstorm Sandy in October 2012. This borrowing stems from a structural imbalance in how the NFIP measures and prices for risk, resulting in only 46 percent of premium dollars collected in 2016 being available for the payments of claims. With such a low portion of premiums available to pay claims, the pressure on the NFIP to borrow from taxpayers increases. The NFIP's structural budget crisis has required periodic legislation to increase its borrowing authority, the most recent example of which occurred in January 2013 when Congress increased the NFIP's borrowing authority by $9.7 billion--from $20.725 billion to its current $30.425 billion level.

The "Repeatedly Flooded Communities Preparation Act" addresses a long-standing and serious problem with the NFIP: the growing number of properties that are repeatedly flooded. As of January 2016, there were more than 150,000 structures around the country classified as "Repeat Loss Properties" (RLP) by FEMA. FEMA estimates that these properties comprise just one percent of those insured by NFIP, but represent 25 to 30 percent of all flood claims.

The NFIP has $24.6 billion in debt and according to a 2009 report by the Department of Homeland Security's Inspector General, the number of repeatedly flooded properties increases by nearly 5,000 each year and efforts to mitigate are being outpaced by a factor of 10 to 1. From 1978 through 2011, RLP losses added up to more than $12 billion--or approximately half of the NFIP's debt.

H.R. 1558, the "Repeatedly Flooded Communities Preparation Act" will help to proactively reduce flood risk rather than simply repeatedly rebuilding properties. Specifically, H.R. 1558 would require communities with a significant number of properties that have repeatedly flooded to: (1) review and analyze data on local properties and public infrastructure that flood repeatedly to determine the specific areas that should be priorities for voluntary buyouts, drainage improvements, or other mitigation efforts; (2) develop and implement plans for lowering flood risk in these problem areas; (3) share plans and reports with the public; and (4) submit these plans as well as reports on progress to FEMA.

Additionally, the "Repeatedly Flooded Communities Preparation Act" sets deadlines for FEMA to develop criteria to govern these repeat loss plans and determine any appropriate sanctions for failure to act. It requires FEMA to report to Congress every two years on implementation progress.

H.R. 1558 also includes a provision to expedite FEMA's implementation of a policyholder monthly payment option. The Homeowner Flood Insurance Affordability Act of 2014 (P.L. 113- 89) required FEMA to offer monthly installment payments for premiums and provided the agency 18 months to implement the requirement. This provision will accelerate an implementation process that is behind schedule and provide that policyholders be charged no more than $25 during the first year after enactment; after the 12 month period, policyholders will be charged an administrative fee that reflects actual costs, pursuant to a Government Accountability Office study.

Hearings

The Committee on Financial Services' Subcommittee on Housing & Insurance held two hearings examining matters relating to H.R. 1558 on March 9, 2017 and March 16, 2017. The Committee on Financial Services held a hearing examining matters relating to H.R. 1558 on June 7, 2017.

Committee Consideration

The Committee on Financial Services met in open session on June 15, 2017 to consider H.R. 1558. The Committee ordered H.R. 1558 to be reported favorably to the House, as amended, by voice vote, a quorum being present. Before the motion to report was offered, the Committee adopted an amendment offered by Mr. Royce, as amended by an amendment offered by Mrs. Maloney, by voice vote and adopted an amendment offered by Mr. David Scott of Georgia by voice vote, a quorum being present.

Committee Votes

Clause 3(b) of rule XIII of the Rules of the House of Representatives requires the Committee to list the record votes on the motion to report legislation and amendments thereto. There were no recorded votes for H.R. 1558.

Committee Oversight Findings

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House of Representatives, the findings and recommendations of the Committee based on oversight activities under clause 2(b)(1) of rule X of the Rules of the House of Representatives, are incorporated in the descriptive portions of this report.

Performance Goals and Objectives

Pursuant to clause 3(c)(4) of rule XIII of the Rules of the House of Representatives, the Committee states that H.R. 1558 will protect taxpayers and policyholders by encouraging communities to mitigate properties that are at risk of flooding.

New Budget Authority, Entitlement Authority, and Tax Expenditures

In compliance with clause 3(c)(2) of rule XIII of the Rules of the House of Representatives, the Committee adopts as its own the estimate of new budget authority, entitlement authority, or tax expenditures or revenues contained in the cost estimate prepared by the Director of the Congressional Budget Office pursuant to section 402 of the Congressional Budget Act of 1974.

Committee Cost Estimate

The Committee adopts as its own the cost estimate prepared by the Director of the Congressional Budget Office pursuant to section 402 of the Congressional Budget Act of 1974.

Congressional Budget Office Estimates

Pursuant to clause 3(c)(3) of rule XIII of the Rules of the House of Representatives, the following is the cost estimate provided by the Congressional Budget Office pursuant to section 402 of the Congressional Budget Act of 1974:

U.S. Congress,

Congressional Budget Office,

Washington, DC, August 9, 2017.

Hon. Jeb Hensarling,

Chairman, Committee on Financial Services,

House of Representatives, Washington, DC.

Dear Mr. Chairman: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 1558, the Repeatedly Flooded Communities Preparation Act.

If you wish further details on this estimate, we will be pleased to provide them. The CBO staff contact is Robert Reese.

Sincerely,

Mark P. Hadley

(For Keith Hall).

Enclosure.

H.R. 1558--Repeatedly Flooded Communities Preparation Act

Summary: The Federal Emergency Management Agency (FEMA) provides flood insurance coverage to property owners through the National Flood Insurance Program (NFIP). Property owners who buy coverage through the NFIP pay annual premiums, which are credited to the National Flood Insurance Fund and used to pay flood damage claims submitted by policyholders. Those collections and payments are not subject to annual appropriation.

H.R. 1558 would direct FEMA to require certain communities that participate in the NFIP to implement community-wide plans for flood mitigation. H.R. 1558 also would require FEMA to allow certain NFIP policyholders to pay their annual premiums in monthly installments.

CBO estimates that implementing the bill would have no significant effect on spending subject to appropriation in any year. Enacting H.R. 1558 would affect direct spending; therefore, pay-as-you-go procedures apply. However, CBO estimates that, on net, those effects would not be significant. Enacting the bill would not affect revenues.

CBO estimates that enacting H.R. 1558 would not significantly increase net direct spending or on-budget deficits in any of the four consecutive 10-year periods beginning in 2028.

H.R. 1558 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act (UMRA) and would impose no costs on state, local, or tribal governments.

Estimated cost to the Federal Government: The costs of this legislation fall within budget function 450 (community and regional development). Enacting the bill could affect claims and premiums but any such effects would be offset by changes in collections or costs, so that the net effect would not be significant.

Basis of estimate: For this estimate, CBO assumes that H.R. 1558 will be enacted near the end of fiscal year 2017.

Community accountability for repetitively flooded areas

H.R. 1558 would direct FEMA to create regulations that requires communities that choose to participate in the NFIP to implement mitigation plans designed to reduce the risk and cost of potential damage from floods in future years. The regulations would be aimed at communities that have:

50 or more repetitive loss structures,

5 or more severe repetitive loss structures, or

A public or private nonprofit facility that has been damaged by flooding and received federal assistance to repair it in the past 10 years.

H.R. 1558 would define a "repetitive loss structure" as a structure that has had, within a 10-year period, two or more flood claims totaling over $1,000 each. A severe repetitive loss structure is currently defined as:

A structure that has received four or more separate NFIP claims payments, with the amount of each such payment exceeding $5,000, or

A structure that has received two separate NFIP claims payments with the cumulative amount surpassing the value of the structure.

Under the bill, regulations would include appropriate sanctions for communities that do not adequately implement a mitigation plan. Such sanctions would be left to the discretion of FEMA.

Based on the cost to FEMA of implementing similar regulations and on the types of sanctions likely to be adopted, CBO estimates that increased administrative costs under this section would total less than $500,000 in any year. Such spending would be subject to the availability of appropriated funds.

CBO has no basis to evaluate the extent or the effectiveness of any mitigation measures that may be adopted by communities as a result of the proposed regulations. Depending on the level of state and local community spending on the targeted properties, such mitigation measures could significantly reduce the cost of future NFIP claims. However, adopting measures to make individual structures more resilient to flood damage also would reduce the risk-based premiums that policyholders pay to FEMA for insurance. Furthermore, because implementing flood-mitigation measures for individual properties is costly for local communities, whether or not those communities would devote significant resources to this effort is unclear. Therefore, CBO expects that the program's net costs would be little changed by this provision.

Monthly installment payment of premiums

Under current law, FEMA must provide certain NFIP policyholders who are not required to escrow their premiums and fees for flood insurance the option to pay premiums on either an annual or monthly basis. Because FEMA has not issued regulations implementing that requirement, all NFIP policyholders not subject to escrow requirements currently pay their premiums annually. CBO estimates that under current law only a small number of policies could pay premiums on a monthly basis because most properties are subject to mortgages with a lending institution that require them to escrow their insurance payments. The institutions remit those premiums directly to FEMA on the homeowners' behalf, usually on an annual basis.

H.R. 1558 would direct FEMA to implement a pilot program to allow eligible policyholders to pay premiums in monthly installments without first implementing the relevant regulations. The pilot program would last for one year before phasing into a regular program.

During the pilot program FEMA would be authorized to charge policyholders who opt to pay their premiums on a monthly basis a fee of up to $25 a year. That fee would be used to offset any administrative costs associated with collecting, storing, and processing payments on a monthly basis. After the first year, FEMA would be authorized to adjust the fee to cover the total added cost of collecting premiums on a monthly basis for all eligible policyholders who choose to pay on such a schedule.

If large numbers of eligible policyholders elected to pay their premiums on a monthly basis the timing of when insurance premiums are collected would change, but there would otherwise be no significant effect on the cost of insurance claims or purchase of insurance.

Pay-As-You-Go considerations: The Statutory Pay-As-You-Go Act of 2010 establishes budget-reporting and enforcement procedures for legislation affecting direct spending or revenues. NFIP collections are classified as offsetting receipts (a reduction in direct spending). Enacting H.R. 1558 could change collections from policyholders, but any such collections would be offset by additional administrative costs. Therefore, CBO estimates that the bill's net effect on direct spending would be insignificant in 2018 and negligible each year thereafter. Enacting H.R. 1558 would not affect revenues.

Increase in long-term direct spending and deficits: CBO estimates that enacting the bill would not significantly increase net direct spending or on-budget deficits in any of the four consecutive 10-year periods beginning in 2028.

Intergovernmental and private-sector impact: H.R. 1558 contains no intergovernmental or private-sector mandates as defined in UMRA and would impose no costs on state, local, or tribal governments.

Estimate prepared by: Federal costs: Robert Reese; Impact on state, local, and tribal governments: Rachel Austin; Impact on the private sector: Logan Smith.

Estimate approved by: H. Samuel Papenfuss, Deputy Assistant Director for Budget Analysis.

Federal Mandates Statement

The Committee adopts as its own the estimate of Federal mandates prepared by the Director of the Congressional Budget Office pursuant to section 423 of the Unfunded Mandates Reform Act.

Advisory Committee Statement

No advisory committees within the meaning of section 5(b) of the Federal Advisory Committee Act were created by this legislation.

Applicability to Legislative Branch

The Committee finds that the legislation does not relate to the terms and conditions of employment or access to public services or accommodations within the meaning of the section 102(b)(3) of the Congressional Accountability Act.

Earmark Identification

H.R. 1558 does not contain any congressional earmarks, limited tax benefits, or limited tariff benefits as defined in clause 9 of rule XXI.

Duplication of Federal Programs

Pursuant to section 3(c)(5) of rule XIII, the Committee states that no provision of H.R. 1558 establishes or reauthorizes a program of the Federal Government known to be duplicative of another Federal program, a program that was included in any report from the Government Accountability Office to Congress pursuant to section 21 of Public Law 111- 139, or a program related to a program identified in the most recent Catalog of Federal Domestic Assistance.

Disclosure of Directed Rulemaking

Pursuant to section 3(i) of H. Res. 5, 115th Cong. (2017), the Committee states that H.R. 1558 contains no directed rulemaking.

Section-by-Section Analysis of the Legislation

Sec. 1 Short title

This section cites H.R. 1558 as the "Repeatedly Flooded Communities Preparation Act."

Sec. 2 Community accountability for repetitively flooded areas

The Administrator shall require any covered community to (1) identify the areas within the community where properties or flood-damaged facilities are located to determine areas repeatedly damaged by floods and to assess the continuing risks to such areas; (2) develop a community-specific plan for mitigating continuing flood risks to such repetitively flooded areas and to submit such plan and plan updates to the Administrator; (3) implement the plan; and (4) make such plan and plan updates in reducing flood risk available to the public.

Any plans developed may be incorporated into flood and hazard mitigation plans developed by the community.

To assist communities under this bill, the Administrator shall, upon request provide covered communities with appropriate data regarding the property addresses and dates of claims associated with insured properties within the community. In making determinations regarding financial assistance, the Administrator may consider the extent to which a community has complied with this bill and is working to remedy problems with addressing repeatedly flooded areas.

Communities that fail to develop or make sufficient progress in executing their plan would be subject to appropriate sanctions, as determined by FEMA. Before imposing any sanctions, the Administrator shall provide the covered community involved with notice of the non-compliance that could result in the imposition of sanctions, and the notice shall include recommendations for actions to bring the covered community into compliance. In determining appropriate sanctions to impose, the Administrator shall consider the resources available to the covered community, including Federal funding, the portion of the covered community that lies within an area having special flood hazards, and other factors that make it difficult for the covered community to conduct mitigation activities for existing flood-prone structures.

A covered community is defined as a community that is participating in the National Flood Insurance Program and (1) has 50 or more repetitive loss structures for each of which, during any 10 year period, two or more claims for payments under flood insurance coverage have been made with a cumulative amount exceeding $1,000; (2) has 5 or more severe repetitive loss structures for which mitigation activities have not been conducted; or (3) has a public facility or a private non-profit facility that has received federal disaster assistance for repair, restoration, reconstruction, or replacement in connection with more than one flooding event in the most recent 10-year period.

No later than the expiration of the six (6) year period after enactment, and not less than every two (2) years thereafter, the Administrator shall submit a report to Congress regarding the progress of implement plans developed pursuant to this bill.

Sec. 3 Monthly installment payment of premiums

Until the Administrator promulgates regulation, the Administrator may adopt policies and procedures to finalize the implementation of the monthly installment payment of premiums provision, initially required by the Homeowner Flood Insurance Affordability Act of 2014. For the first year after enactment of this section, the Administrator may charge policyholders who choose to make monthly installment payments a fee not to exceed $25 annually. No later than 6 months after the date of enactment, the Comptroller General shall submit a report to Congress that sets forth all of the costs associated with the monthly payment premiums. Twelve months after the bill's enactment, the Administrator may adjust the fee charged annually to cover the total cost of the monthly collection of premiums as determined by the report. On an annual basis, the Administrator shall report to Congress the ongoing costs associated with the monthly payment of premiums.

Changes in Existing Law Made by the Bill, as Reported

In compliance with clause 3(e) of rule XIII of the Rules of the House of Representatives, changes in existing law made by the bill, as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, and existing law in which no change is proposed is shown in roman):

NATIONAL FLOOD INSURANCE ACT OF 1968

The full text of the report is found at: https://www.congress.gov/congressional-report/115th-congress/house-report/276/1?r=1

Myron Struck, editor, Targeted News Service, Springfield, Va., 703/304-1897; [email protected]; http://www.targetednews.com