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Watered Down Flood Insurance Bill Could Submerge Taxpayers in Red Ink

March 07, 2014 J

By Mac Zimmerman

The U.S. House of Representatives did its best impression of J. Wellington Wimpy this week, voting to roll back long-overdue reforms to the deeply indebted National Flood Insurance Program (NFIP). Wimpy, the loafer from Popeye, is perhaps best known for his trademark promise: “I will gladly pay you Tuesday for a hamburger today.” And on Capitol Hill, as in the comic strip, that proverbial Tuesday never seems to come.

Mere months after Congress reneged on a promise to reduce spending, and just weeks after approving a nearly $1 trillion farm subsidy bill chock full of goodies for big agribusiness and voting to hike the nation’s debt limit yet again, lawmakers on Tuesday voted to undo key provisions of a 2012 law designed to help rescue the NFIP — which is currently underwater to the tune of $24 billion — from drowning in an sea of red ink.

The reason the program is in such deep water is because American taxpayers far from the coast are required to subsidize the insurance premiums of those who own coastal beach houses. Indeed, some 20 percent of homeowners pay premium rates at the moment that are not based on the actual cost of their flood risk.

The bipartisan reforms approved in 2012, often referred to as Biggert-Waters, sought to phase-in risk-based rates for these homeowners, asking those who choose to live in flood-prone areas to pay rates that more accurately reflect the risks of that choice. Moreover, those more realistic rates were set to kick in for many homeowners only when they sold their residence.

These modest reforms make sense. Middle-class taxpayers who live high in the Rocky Mountains or deep in the Arizona desert should not be required to subsidize the decisions of multi-millionaires who choose to build luxury beach homes in Hurricane Alley.

In addition to getting taxpayers out of the business of socializing risk in flood zones, the government should also get out of the business of requiring homeowners who live in such areas to purchase it.

Under current law, the federal government bars most financial institutions from making, extending, or renewing any loan for property located in flood prone areas. While a homeowner can petition to have their home designation changed, this process can be costly with no guarantee of success.

Rather than relying on heavy-handed government mandates that distort the flood insurance market, prospective home buyers and lenders should be able to conclude such arrangements as they see fit, without interference from federal bureaucrats.

In the end, rather than continuing to kick the can down the road for the political benefit of a few lawmakers, Congress should move forward with the common-sense reforms adopted just a few short years ago.

It is time for the federal government to stop micromanaging and distorting the flood insurance market, and to put an end to the practice of requiring the great many taxpayers who don’t live in flood zones to underwrite the decisions of those who do.

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