Senate Urban Affairs Committee Issues Testimony From N.Y. Director of Federal Affairs Sternhell
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My goal today is to present a community perspective, one based on experience as a local government official and direct feedback from constituents. NYC has more than 520 miles of coastlines and riverbanks. Like so many other states and communities throughout this country, our riverbanks and coasts hold a dangerous beauty we must grapple with. The advent of sea level rise and rapid climate change is forcing us to reckon with our relationship to the water and the cities and communities we have developed next to it.
The federal government has a range of tools at its disposal to help manage flood, from macro solutions like largescale resiliency projects to the more micro like the NFIP. The NFIP is a lifeline for property owners after a flooding event that can mean the difference between recovery and the loss of a critical asset.
Given the stakes the program has for so many, I want to focus your attention on four key areas as the reauthorization of NFIP is contemplated: affordability, mitigation, mapping, and other program alternatives.
Affordability
The Covid-19 pandemic has added an additional layer of complexity to the issue as millions of Americans lost their jobs, saw incomes reduced, and struggled to pay mortgages and rents. Though we are at the long awaited moment of the pandemic seemingly coming under control and the country opening back up, millions of Americans will now face staggering rent and mortgage arrears on top of existing mandatory expenses like insurance.
Further complicating matter is a program
These rapidly rising premiums will force thousands to make the impossible choice between abandoning their insurance policies or cutting back on household necessities like food, utility payments, and school supplies, or even abandoning their homes altogether. That could trigger a government-made foreclosure crisis in communities where many are already struggling to make ends meet especially after the Covid-19 pandemic.
The City urges
The RAND report offers an instructive look at how an affordability program could be modeled. To start, RAND looked at what "affordability" meant, noting that, "[f]lood insurance adds to the cost of owning a home, and we frame the discussion of flood insurance affordability in terms of the ratio of homeownership costs to household income."/2
From this, the report utilized a metric called a PITI ratio (a ratio of mortgage principal and interest, property taxes, and property insurance (PITI) payments to income), that looked at the cost of owning a given home, not merely property value or income alone. This tool enabled researchers to see what small changes could affect the ability of a person to stay in their home, whether it was a mandatory rate increase or even just additional fees.
The City believes this type of metric offers an opportunity to set national policy that is sufficiently sensitive to local and individualized conditions. Other options that utilize a percentage of AMI alone are too limiting. Though AMI is set to regional conditions, it is not honed enough; take for instance
The PITI ratio doesn't utilize all of these but it does provide a more nuanced look at "ability to pay" for the purposes of premium reduction affordability programs and grants for mitigation.
The City strongly supports rate reductions and grants to help address affordability over loans. While loans are often discussed to help homeowners cover the cost of mitigation investments, they remain a relatively unviable option for low-to middle-income households. Setting aside the ability to qualify for a loan, many low-to middle-income households will find even at 0% interest, loan repayments are out of reach and savings from mitigation activity will not be realized until after the loan is repaid.
The chart below illustrates some of the challenges with loans using a high NFIP premium-
Mitigation
The availability of a range of mitigation options is key to affordability puzzle. It also, by definition, buys down risk for the property owner and to the NFIP.
Currently, the NFIP provides few incentives for property owners to protect their buildings from flood damage and reduce their premiums, other than by elevating their buildings. While that option may be possible for some structures--it simply is not feasible in many areas of
To best evaluate these alternatives,
Furthermore, there are currently no options for homeowners with an X-zone policy who are ineligible for a Preferred Risk Policy (PRP) to reduce their premiums through mitigation. Since flood risk is growing in these areas due to climate change,
Community Level
Community level mitigation is also a critical part of lowering program costs and achieving greater affordability at scale. Two core elements of this are funding for infrastructure measures and changes to floodplain management practices.
NFIP and
Federal support of "Resilient Design" that anticipates future risks in new construction and substantial rehabilitations of buildings and infrastructure can go a long way in avoiding catastrophic loss.
Since Hurricane Sandy in 2012, NYC has repeatedly increased required flood protection levels in Appendix G of the building code. These strategic changes help ensure that new buildings and major renovations are better prepared to withstand extreme flood events. Simultaneously, NYC has developed Climate Resiliency Design Guidelines which provide an even higher standard of flood protection for City capital projects. These Guidelines go beyond building codes by using sea level rise predictions, the useful life of the structure, and maps of future flood risk to calculate building-specific resilient design criteria. The Guidelines were recently made mandatory through local legislation for all public buildings and infrastructure, and this law will help ensure that NYC's investments in public services are designed to withstand flooding and sea level rise for decades to come.
Just this past week the City passed new zoning rules tied to flood risk mitigation. The goal of the Zoning for Coastal Flood Resiliency (ZCFR) is to help buildings better withstand and recover from major disasters and sea level rise, which could lead to lower insurance costs.
Briefly, the ZCFR updates, improves, and makes permanent the emergency rules established in the wake of Superstorm Sandy. New and substantially rehabbed buildings in areas of the City that, by 2050, are expected to have a 1% chance of a flood event in any given year, are now permitted to meet or exceed flood-resistant construction standards set by the
ZCFR lets buildings elevate or relocate important mechanical, electrical and plumbing equipment, or backup systems like generators, above the expected height of floodwaters. This can be done either within the building, atop of the structure, or on a separate platform. For example, a NYCHA complex in Lower Manhattan can construct an elevated mechanical building in its yard to address the needs of the campus while keeping equipment out of the path of damaging floodwaters.
In addition to ZCFR, the City has undertaken specific "Resilient Neighborhood" actions to further limit flood risk in three neighborhoods, including:
* In Gerritsen Beach, the establishment of a new
* In Old
Mapping
Rate Maps
NYC ultimately appealed and won an appeal to Preliminary flood maps that
As you think through the program going forward, we ask you to consider the role of maps and zones, especially if Risk Rating 2.0 is to become to be the metric by which rates are set.
Up until now zones have been critical for setting rates- but Risk Rating 2.0 rates are NOT based on zones, although the NFIP purchase requirements ARE based on zones. In effect there is a general metric telling a property owner they must carry a policy, however the rate they pay on that policy is not tied to that metric. This approach risks causing considerable confusion for residents about what the flood risk to their home actually is. The role of zones in the NFIP must be carefully thought out to ensure clear communication and limit confusion about a home's flood risk.
Future
Apart from the flood zone (potentially rate) maps, NYC, in partnership with
Program Alternatives
Disclosures
Increased Cost of Compliance
Increased Cost of Compliance (ICC) coverage, currently included in standard NFIP policies, allows for up to
In addition to increasing the amount of ICC,
Definitions
The designation of a property as Severe Repetitive Loss has significant implications for property owners and communities. The current definition of a severe repetitive loss property (SRP) is one based on the number (4+) and value (
FEMA Grant Funding
Reforms are needed for
Spending caps for both elevation and acquisition are typically well below the cost it takes to elevate a home or purchase a property in NYC. Additionally, the grants do not currently allow for funding to spent on a household's relocation expenses. We recommend that the FMA grant for acquisition of a residential property for purposes of flood mitigation be expanded to support "reasonable out-of-pocket expenses" for household relocation and rehousing. Consistent with the Uniform Relocation Act (24 CFR Sec. 578.83), reasonable relocation costs include but are not limited to: moving cost expenses, temporary rental or homeownership assistance based on the market value of a "comparable replacement dwelling," closing cost reimbursement and transfer taxes, and legal and housing counseling services necessary to support relocation, particularly for low- and moderate-income households.
The grant process must also be made more flexible. Currently communities are required to submit a list of properties at the time of application. This requires each community to maintain a pre-existing list of interested property owners, posing several challenges: 1)
WYOs Claims and Compensation
Recognizing
Relatedly, as the City is concerned about flood insurance affordability and the solvency of the NFIP, the City strongly urges
Thank you again for having me here today and I look forward to answering your questions.
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The table can be viewed at: https://www.banking.senate.gov/imo/media/doc/Sternhell%20Testimony%205-18-21.pdf
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Footnotes:
1 https://www.rand.org/pubs/research_reports/RR1776.html, pg 27
2 Ibid. at 23.
3 According to various home improvement sites, the cost of elevating a home ranges from
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