Could the NFIP Be Heading for a Lapse?

By | July 20, 2018

With just 11 days until statutory authorization for the National Flood Insurance Program is set to expire, Congress has no obvious plan to extend it. While the U.S. House passed a comprehensive five-year reauthorization bill last November, making a number of important reforms, the Senate has responded by doing approximately nothing.

This is a familiar position for the federal agency that has been the primary source of U.S. flood coverage over the past 50 years. Since 1998, the NFIP has come up for reauthorization 41 times. In 38 of those cases—all but the 2004 Bunning-Bereuter-Blumenauer reform bill, 2012’s Biggert-Waters Act and a 60-day extension, also in 2012, that was attached to reforms sponsored by then-Sen. Tom Coburn, R-Okla.—the only change to the program Congress opted to make was to write in a new expiration date.

There were plenty of opportunities for this time to be different. Indeed, that was the goal—to force a vote on a standalone long-term reauthorization—back in March, when the NFIP’s expiration date was intentionally decoupled from Congress’ calendar of continuing resolutions.

But this time wasn’t different. The Senate continued to do nothing and Congress is now poised once again to kick the can a bit further down the road – perhaps for four months, perhaps for six.

Or are they?

Some members, fully fed up with these feckless delays, are attempting to mount an insurgency. Reps. Ed Royce, R-Calif., and Earl Blumenauer, D-Ore., came forward this week with a reasonable proposal. Their bill would extend the NFIP through November. But first, it would insist on only the most modest of reforms.

The Royce-Blumenauer measure would require communities to submit plans to the Federal Emergency Management Agency for how they intend to mitigate repetitive-loss risks. It would double the coverage extended through FEMA’s increased cost of compliance program from $30,000 to $60,000 and allow policyholders to buy up to $100,000 of appropriately priced ICC coverage. It would require disclosure of past flood claims, extend a few mitigation credits and allow premiums to be paid on a monthly basis, while calling for a few additional studies.

None of these are in any way controversial changes. All are either things that already have passed the House unanimously or that were included in the bipartisan legislation sponsored by Senate Banking Committee Chairman Mike Crapo, R-Wyo., and Ranking Member Sherrod Brown, D-Ohio. They are the very bare minimum of what could even be called “reform” – the very lowest of the low-hanging fruits.

And yet, despite support for the bill from House Financial Services Committee Chairman Jeb Hensarling, R-Texas, the answer has already come back: no. The Senate will not consider any reform not tied to a long-term extension. But it also won’t consider, or even negotiate, the five-year extension that already passed the House.

In light of the Senate’s intransigence, early this coming week, the full House is set to vote on a so-called “clean” extension that extends the program through November, without any changes. Hensarling opposes the move, but House leadership is committed to it and there probably aren’t enough votes to block it on the floor.

But it’s once it’s sent over to the Senate where things could get interesting. Senate Majority Leader Mitch McConnell, R-Ky., intends to move the bill under “unanimous consent,” because the alternative would be to burn several days of floor time going through usual Senate procedure.

They may not get it. A handful of senators already have made clear that they will not vote for any NFIP extension unless it includes at least some reforms – even one reform. If House leadership makes good on their plan to pass a clean extension, and if any of these senators make good on their threat to withhold unanimous consent (as some already have on an effort to “hotline” a six-month extension this past week), then it’s entirely possible that the House will break for its August recess without an agreement in place.

Come Aug. 1, the NFIP would shut down. It may even have to stay that way until after Labor Day, when members are scheduled to return.

That sort of lapse would be disruptive, to be sure. According to the National Association of Realtors, during the program’s last significant lapse—for the entire month of June 2011—more than 40,000 real estate transactions had to be delayed because lenders wouldn’t close on mortgages for properties in flood zones without the assurance of flood insurance coverage.

But perhaps disruption is the only way to break this cycle. The NFIP is $20.5 billion in debt to American taxpayers. That’s after Congress moved last fall to erase $16 billion of existing debt, again without asking for any reforms at all. According to projections by the Congressional Budget Office, as currently structured, it should expect to lose an average of $1.4 billion every year.

The reforms the House passed last year looked to at least patch some of those problems through better mitigation and mapping, by doing something about repetitive loss properties and, perhaps most importantly, by encouraging the growth of the private flood insurance market. Private carriers now write about 15 percent of the nation’s flood coverage, a total that is sure to rise. It could rise more quickly if Congress were to clarify the rules regarding which policies satisfy federal mortgage requirements, lift counter-productive NFIP noncompete clauses and share FEMA’s loss data with private companies – all ideas that already earned support in the House.

But if those consensus, bipartisan reforms can’t find purchase in the Senate, if Congress refuses to consider even the most modest and obvious of improvements, then maybe the only way out is through.

For years, the NFIP has been drowning. It’s time its enablers learn how to swim.

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