WASHINGTON — Less than two years after passing major legislation aimed at reforming the government’s much-criticized flood insurance program, Congress yesterday sent President Barack Obama a bill to scale back many of the resulting big flood insurance premium increases faced by hundreds of thousands of homeowners. The measure would also allow below-market insurance rates to be passed on to people buying homes with taxpayer-subsidized policies.
The measure breezed through the Senate and on to Obama’s desk by a 72-22 vote. The House passed the measure last week.
Both Sen. Thad Cochran (R-Miss.) and Sen. Roger Wicker (R-Miss.) voted for the legislation.
The legislation significantly rewrites a major overhaul of the flood insurance program that passed almost unanimously in 2012. Those 2012 changes were aimed at weaning hundreds of thousands of homeowners off of subsidized rates and required extensive updating of the flood maps used to set premiums. But its implementation has stirred anxiety among many homeowners along the Atlantic and Gulf coasts and in flood plains, many of whom are threatened with unaffordable rate increases.
Sen. Mary Landrieu, D-La., said the White House has indicated Obama will sign the measure into law despite earlier administration reservations about a Senate-passed bill that would have delayed implementation of the 2012 law.
“While it is important to put this program on sound financial footing, middle-class families should be able to afford the insurance they need to stay in their homes,” White House spokesman Bobby Whithorne said.
Thursday’s bill was written by House Majority Leader Eric Cantor, R-Va., and Rep. Michael Grimm, R-N.Y., with input from Democrats like Rep. Maxine Waters of California, whose votes were critical to House passage last week.
The bill would repeal a provision in the 2012 law that threatens hundreds of thousands of homeowners with huge premium increases under new and updated government flood maps. Their properties were originally built to code but were subsequently found to be at greater flood risk. Such “grandfathered” homeowners currently benefit from below-market rates that are subsidized by other policyholders, and the new legislation would preserve that status and cap premium increases at 18 percent a year. The 2012 reforms required premiums increases to actuarially sound rates over five years.
Another provision, eagerly sought by the real estate industry, would allow home sellers to pass taxpayer-subsidized policies on to the people buying their homes instead of requiring purchasers to pay actuarially sound rates immediately, as required by the 2012 law. The new rates are particularly high in older coastal communities in states like Florida, Massachusetts and New Jersey, and have put a damper on home sales as prospective buyers recoil at the higher, multifold premium increases.
Anger over the higher rates has fueled a bipartisan drive to delay or derail many of the 2012 changes and the political urgency to provide relief from higher premiums was especially felt in states like Louisiana, Florida, and New York.
“Affordable flood insurance is about more than just actuarial numbers on a page. It is about protecting our unique culture, a treasured way of life and preserving the historic coastal communities that are the engine’s our of nation’s economy,” Landrieu said. Landrieu’s potential GOP opponent in the fall, Rep. Bill Cassidy, was a key force with Grimm in advancing the bill through the House over objections from key lawmakers like Financial Services Committee Chairman Jeb Hensarling, R-Texas, whose turf got trampled in the process. Senate Banking Committee Chairman Tim Johnson, D-S.D., also opposed the bill after backing the earlier Senate measure.
The measure steamrolled to passage over objections from defenders of the 2012 reforms who said Thursday’s bill continues to subsidize home ownership in risky, flood-prone areas and increases the odds of a future taxpayer bailout while requiring people in safer areas who carry flood insurance to subsidize below-market rates for homeowners benefiting from grandfathered rates.
“Reducing rates does not reduce risk. In fact, it reduces incentives to mitigate that risk. And they extended the subsidies on the backs of policyholders paying full freight,” said Steve Ellis, vice president of Taxpayers for Common Sense, a Washington-based watchdog group. “While politically expedient today, this abdication of responsibility by Congress is going to come back and bite them and taxpayers when the next disaster strikes. Everyone knows this program is not fiscally sound or even viable in the near term.”
The measure would also give relief to people who have bought homes after the changes were enacted in July 2012 and therefore face sharp, immediate jumps in their premiums; they would see those increases rolled back and receive rebates.
“We’ve solved a very short-term problem and made it a long-term problem,” said Sen. Tom Coburn, R-Okla. “We didn’t really do our work because we were in such a hurry to take the political pressure off of the increases in the flood insurance rates.”
But people whose second home is in a flood zone and those whose properties have flooded repeatedly would continue to see their premiums go up by 25 percent a year until reaching a level consistent with their real risk of flooding.
Sen. Mike Lee, R-Utah, opposed the measure but allowed Thursday’s speedy vote in exchange for separate passage of a measure to repeal premium rebates for people who have bought beach houses and other second homes since the 2012 law was passed. He said Cantor has promised it will be voted on by the GOP-controlled House.
The Senate took a different approach in January, passing a bill to delay the changes, which were aimed at putting the flood insurance program on sound financial footing. The flood program is presently $24 billion in the red, mostly because of huge losses from Hurricane Katrina and Superstorm Sandy.
The White House did not issue an official policy statement on the measure but said during debate on the Senate bill that it still supported a phased-in transition to risk-based flood insurance rates to help ensure that the federal flood insurance program has adequate resources to pay future claims. Democrats supporting the measure fumed and the White House didn’t weigh in on the subsequent House measure.
Some environmental groups also opposed the bill, saying climate change has increased the risk of flooding in coastal areas, making it illogical to continue to rebuild in flood zones.
The measure also would give relief to people who have bought homes after the 2012 overhaul and therefore face sharp, immediate jumps in their premiums. Those homeowners would see rate increases capped at an average of 15 percent, with a maximum of 18 percent a year.
The Federal Emergency Management Agency would retain the ability to increase premiums each year, but the increases wouldn’t be as steep as required under the 2012 law. A $25 surcharge on each of 5.6 million policyholders would offset the cost of continued subsidies for about 1.1 million homeowners. Owners of second homes would pay a $250 surcharge.
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