Excerpts of the report follow:
Purpose and Summary
Background and Need for Legislation
Floods are among the most frequently occurring and costly natural disasters. Most declarations of federal disasters by the
To supplement the availability of flood insurance in the private market,
Homeowners with mortgages held by federally regulated lenders on property in participating communities identified by
Residents and business owners in over 22,000 participating communities across
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.
H.R. 2246 addresses concerns that the NFIP's fiscal condition is unsustainable and recognizes that further reforms are needed to optimize efficiency and instill market discipline. H.R. 2246 would require the FEMA Administrator to annually cede a portion of the NFIP's risk to the private reinsurance or capital markets in an amount determined by the Administrator that is sufficient to maintain the program's ability to pay claims, and limit exposure to flood loss. H.R. 2246 would also provide the FEMA Administrator the ability to enter into multi-year contracts for risk transfers.
Historically, the NFIP had been limited to using flood insurance premiums, available surplus, borrowing capacity from the
In recognition of the inefficiencies of the NFIP in the commercial and multifamily properties, H.R. 2246 would eliminate the mandatory purchase requirement for commercial and multifamily properties, while preserving the eligibility of such properties to voluntarily purchase NFIP coverage if they so choose. Today, commercial and multifamily properties, oftentimes valued many times over the maximum
H.R. 2246, however, would ensure that commercial and multifamily properties have access to flood insurance by making it permissive for these properties to purchase NFIP policies. As a result, commercial and multifamily properties can opt for policies that better fit their coverage requirements such as purchasing umbrella policies for a group of properties.
In recognition of the challenges that plagued the development of timely flood rate risk maps, H.R. 2246 authorizes alternative community flood maps, developed and financed by local governments. Today,
Subject to certification and approval by the FEMA Administrator, these community maps would be the flood insurance rate map for the purposes of the NFIP, with respect to the area covered on the map. Community maps would be an avenue for those communities, who desire re-mapping of their areas on a more frequent basis or elect to use their local resources to use updated technology, often not available to
Clause 3(b) of rule XIII of the Rules of the
Committee Oversight Findings
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
Performance Goals and Objectives
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
In compliance with clause 3(c)(2) of rule XIII of the Rules of the
Committee Cost Estimate
The Committee adopts as its own the cost estimate prepared by the Director of the
Congressional Budget Office Estimates
Pursuant to clause 3(c)(3) of rule XIII of the Rules of the
Dear Mr. Chairman: The
If you wish further details on this estimate, we will be pleased to provide them. The CBO staff contact is
H.R. 2246--Taxpayer Exposure Mitigation Act of 2017
Summary: H.R. 2246 would eliminate the requirement for commercial properties in flood zones to have flood insurance if the properties are financed by a federally regulated lending institution, or a federal lender. The bill also would require the
The cost to enact H.R. 2246 is uncertain and would depend on the number of commercial properties that drop NFIP coverage. CBO estimates that enacting H.R. 2246 would increase direct spending by
Because enacting H.R. 2246 would affect direct spending, pay-as-you-go procedures apply. Enacting the legislation would not affect revenues.
CBO estimates that enacting H.R. 2246 would not increase net direct spending or on-budget deficits by more than
H.R. 2246 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 estimated budgetary effect of H.R. 2246 is shown in the following table. The costs of this legislation fall within budget function 450 (community and regional development).
Basis of estimate: For this estimate, CBO assumes that H.R. 2246 will be enacted near the end of fiscal year 2017 and that the necessary amounts will be appropriated for each fiscal year.
Under current law, residential and commercial property owners can choose to buy flood insurance through the NFIP. Property owners who buy coverage through the NFIP pay annual premiums which are deposited into the
Mandatory Purchase Requirement. Owners of properties that are located within an area designated as having at least a 1 percent chance of being flooded in any year (known as a Special
Currently, there are about 5 million properties insured by the NFIP. Of those properties, about 340,000 (or 6.7 percent) are commercial properties, CBO estimates. How many of those properties are subject to the mandatory purchase requirement is unknown because the properties' lending institutions are required to enforce the requirement and aggregate data on properties subject to that requirement do not exist.
Premiums. Most properties, about 80 percent, are charged a premium based on
Additional Collections. All NFIP policyholders also pay a Reserve Fund Assessment (RFA) equal to 15 percent of their premium and a surcharge equal to
Reinsurance. The NFIP is also authorized to purchase reinsurance from private reinsurance or capital markets. Reinsurance is a mechanism by which a primary insurer, like the NFIP, can guard against catastrophic losses by paying a premium to one or multiple private entities that then assume the liability to pay certain claims at an agreed upon level of losses. In 2017, the NFIP purchased about
The bill would eliminate the requirement to buy flood insurance for commercial properties located in an SFHA and would require
Commercial Property. Using a database of NFIP policy information, CBO estimates that in 2017 there are approximately 230,000 commercial structures in SFHAs with NFIP policies, of which 40 percent pay subsidized premiums.
In 2014, the Government Accountability Office (GAO) reported that many property owners do not recognize the potential damage that may be caused to their property by a flood and underestimate the risk of a flood to their property.1 While CBO cannot determine how many commercial properties subject to the mandatory purchase requirement have NFIP coverage solely because they are required to, we expect that many such property owners underestimate their flood risk. Owners of commercial property face NFIP premiums and fees that average about
1See Government Accountability Office, Overview of GAO's Past Work on the National Flood Insurance Programs (May 2014).
Based on an analysis of information provided by
CBO's estimated costs are uncertain and costs could be significantly greater or smaller than we have estimated. CBO is confident that some commercial property policyholders would drop NFIP coverage under H.R. 2246 at a net cost to the program. However, without basic information about which policyholders are required to maintain coverage, this estimate has a wide range of uncertainty.
Reinsurance. Section 3 of H.R. 2246 would require the NFIP to transfer a portion of the program's risk to private reinsurance or capital markets at least once per year in a manner that would ensure that enough funds are in the NFIP to cover claims in a typical year. Under current law,
Spending subject to appropriation
Section 4 of H.R. 2246 would direct
Based on an analysis of information provided by
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. The net changes in outlays that are subject to those pay-as-you-go procedures are shown in the following table.
CBO ESTIMATE OF PAY-AS-YOU-GO EFFECTS FOR H.R. 2246, AS ORDERED REPORTED BY THE HOUSE COMMITTEE ON FINANCIAL SERVICES ON
Increase in long-term direct spending and deficits: CBO estimates that enacting H.R. 2246 would not increase net direct spending or on-budget deficits by more than
Intergovernmental and private-sector impact: H.R. 2246 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:
Estimate approved by:
Federal Mandates Statement
The Committee adopts as its own the estimate of Federal mandates prepared by the Director of the
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.
H.R. 2246 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. 2246 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
Disclosure of Directed Rulemaking
Pursuant to section 3(i) of
Section-by-Section Analysis of the Legislation
Sec. 1. Short title
This Act may be cited as the "Taxpayer Exposure Mitigation Act of 2017".
Sec. 2. Opt-out of mandatory coverage requirement for commercial properties
Amends the Flood Disaster Protection Act of 1973 and the National Flood Insurance Act of 1968 to eliminate the NFIP's mandatory purchase requirement for all commercial and multifamily properties, while preserving the eligibility of commercial and multifamily properties to voluntarily purchase NFIP coverage if they so choose. Residential properties financed by commercial loans would be treated similar to other commercial and multifamily properties.
Sec. 3. Risk transfer requirement
No later than 18 months after bill enactment, the FEMA Administrator shall annually cede a portion of the risk of the NFIP to the private reinsurance or capital markets, as determined by the Administrator, in an amount that (i) is sufficient to maintain the ability of the program to pay claims; and (ii) manages and limits the annual exposure of the NFIP to flood losses in accordance with the probably maximum loss target established each such year. The Administrator shall establish the probable maximum loss target for the NFIP that is expected to occur such fiscal year. In establishing the probably maximum loss target, the Administrator shall consider--(i) the probable maximum loss targets for other
Gives the Administrator the ability to enter into multi- year contracts for reinsurance.
Sec. 4. Private or community flood maps
Twelve months after bill enactment, the
Until the Administrator promulgates regulations implementing this section, the Administrator may adopt policies and procedures necessary to implement this section without undergoing notice and comment rulemaking.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of the
FLOOD DISASTER PROTECTION ACT OF 1973
H.R. 2246 would repeal the federal requirement to purchase flood insurance for commercial properties and multifamily properties with commercial financing. The Federal Disaster Protection Act requires properties located in a special flood hazard area with a federally-backed mortgage to be covered with flood insurance. Under the law, commercial properties must obtain a maximum of
Some stakeholders have argued that the mandatory purchase requirement is superfluous and cumbersome for large and sophisticated commercial entities who need coverage well above the current maximum coverage of
H.R. 2246 presents an overly broad solution for issues that are specific to large commercial entities, and a number of groups have expressed their opposition to this wholesale exemption. The Independent Community Bankers, for example, oppose this provision because it would harm community banks and small businesses because it increases the likelihood that the collateral they are securing would be unprotected and likely suffer a loss in the event of a flood. The flood insurance take-up rate for properties outside of this mandatory purchase requirement is extremely low, meaning that most people who aren't required to buy flood insurance do not purchase it. That is why a coalition of stakeholders representing the commercial and multifamily real estate industry have expressed concerns about affordability challenges for low- and mid-value properties that will likely opt to forgo flood insurance if given the choice. This creates a ripple effect in the case of a flood where the road to recovery is longer and more difficult for businesses in flood zones.
H.R. 2246 also requires the
Lastly, H.R. 2246 would set up a process to supplant
For these reasons, we oppose H.R. 2246.
The full text of the report is found at: https://www.congress.gov/congressional-report/115th-congress/house-report/255/1?r=11