Shutdown could leave federal flood insurance program out to dry

If the government shuts down as expected on Wednesday, the National Flood Insurance Program (NFIP) will no longer be able to issue new policies or renewals, which could cause headaches for homeowners and those involved in real estate transactions.

People whose coverage is slated to lapse under NFIP, which is run through the Federal Emergency Management Agency (FEMA), could find themselves without insurance in the event of a flood if the government faces a prolonged shutdown.

"The main concern is whether buyers will have coverage if a flood occurs and whether FEMA will have sufficient funds to pay claims," Austin Perez, senior policy representative for insurance Issues at the National Association of Realtors (NAR), said in a statement to The Hill.

The association sent a letter to congressional leaders on Friday urging them to extend the program.

"Without access to flood insurance, American families must rely on federal disaster aid, which is severely limited," said group President Kevin Sears in the letter.

"According to NAR research, 1,400 property sales each day could be forced to move forward and go bare without the protection of flood insurance depending on lender approval. The risk of an unnecessary NFIP lapse puts American lives, families, properties and businesses at untenable risk and must be avoided," Sears wrote.

Andy Winkler, managing director of housing and infrastructure policy at the Bipartisan Policy Center, said that this could also delay some real estate transactions, particularly in areas where flood insurance is required.

"If they don't extend that NFIP reauthorization, historically, that means that home sales in places that require flood insurance are usually delayed," Winkler said.

According to NAR, if there's a lapse in the program, most regulators suspend requirements for flood insurance, which would allow home sales to move forward.

Perez said that "NFIP lapses complicate home sales, but most transactions can still move forward without flood insurance."

However, if a flood actually occurs in one of these cases, homes without flood insurance may be left in the lurch.

Amanda Devecka-Rinear, co-founder and founding director of the New Jersey Organizing Project and a senior fellow at Organizing Resilience, said that while there is a grace period, if the shutdown lasts a long time, "People who, through no fault of their own, were not able to renew their policies will end up with no flood insurance coverage when a storm or flood hits."

Private insurance is also an option, though it makes up a relatively small share of the total flood insurance market.

Congress is currently barreling toward a shutdown. Democrats are using the ticking clock on government funding, which runs out after Tuesday, as leverage to try to pressure Republicans to pass legislation that brings down health care costs.

With GOP majorities in the House and Senate and a Republican in the White House, must-pass legislation such as government funding bills provide a rare opportunity for Democrats to try to get some of their priorities passed.

However, they risk a government shutdown by doing so, which could cut off numerous government operations and services and leave many federal employees without pay. The Trump administration is also threatening to fire an even greater number of federal workers if Democrats don't back down and pass a simple funding extension.

And NFIP is not the only FEMA program that could face challenges in the event of a protracted shutdown.

The Disaster Relief Fund (DRF), which pays for the responses to storms and other disasters, could also dwindle if there's a prolonged funding lapse.

As of August 31, the fund had a total of $10.1 billion, including $8.9 billion earmarked for disasters that are declared major by the president and an additional $1.2 billion in base funding.

"It is concerning to have that low of a balance in the Disaster Relief Fund," said Michael Coen, who was FEMA's chief of staff during the Obama and Biden administrations.

"For a significant earthquake, like a Northridge earthquake that we had in 1994, FEMA could expend hundreds of millions of dollars in the first 24 hours, maybe a billion dollars, or over a billion dollars in the first week of responding to that event," he said.

If it runs out, the U.S. will still be able to respond to disasters, but it will have to take money away from longer-term rebuilding elsewhere. And without congressional appropriations, it has no way of getting additional dollars.

Winkler, with the Bipartisan Policy Center, said whether disaster funds are an issue depends on how long the shutdown lasts.

"The administration has pretty aggressively slowed spending coming out of the DRF," he said. "That puts it in a slightly better position coming into a government shutdown situation than I would have said even just a couple of months ago."