In the decade-plus since Hurricane Katrina, Houston has been debating what it needs to protect itself from a catastrophic weather event. While that conversation has gone on, the city did what most cities do: carried on business as usual, constructing more than 7,000 residential buildings directly in Harris County’s Federal Emergency Management Agency-designated flood plain since 2010. That kind of construction spree, which was detailed in a prescient investigation by ProPublica and the Texas Tribune last year, is not just head-slapping in hindsight, it actually produces its own greater risks, as it means paving over the kinds of wetlands that can help buffer against extreme flooding events. But from a financial perspective, there was a logic behind those 7,000 buildings, as each is eligible for subsidized flood protection through the National Flood Insurance Program, that just so happens to be expiring at the end of September, meaning debate over its reauthorization will compete for time with everything else on a packed fall congressional calendar. “Harvey should be a wake-up call” for deep flood insurance reform, says Rob Moore, a senior policy analyst with the Natural Resource Defense Council’s water team. “One of the biggest shortcomings is that the program has always been intended first and foremost to be a rebuilding program.” While environmental groups, including the Environmental Defense Fund and the National Resources Defense Council, contend that the NFIP encourages irresponsible forms of coastal development, they have odd company in a coalition fighting for the program’s reform – insurance companies and free market groups that just want the government out. Hurricane Harvey is likely to focus attention on questions the federal government and the American public have in large part worked hard to avoid, because they don’t cut cleanly along ideological or partisan lines. And because they’re not much fun to think about. What does home ownership look like in an age of climate change? When is it OK to rebuild, and when is it time to retreat?

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The 30 Texas counties declared disaster areas by Gov. Greg Abbott are home to nearly 450,000 policies underwritten by the National Flood Insurance Program, a FEMA subsidiary. The NFIP was $24.6 billion in debt before Harvey made landfall, and can borrow just $5.8 billion more from the Treasury before the program’s current round of congressional reauthorization expires. Waters are still rising, and it will be several days or even weeks before damage totals are assessed, but early insurance industry estimates say the figure could match costs incurred from Hurricane Katrina, the most expensive disaster in U.S. history . Homeowners hit by the storm will now enter into a months- and potentially years-long claims fulfillment process, attempting to rebuild what they lost. As lawmakers return to Washington early next month to determine the future of the beleaguered agency, there are bigger questions on the table than how to make the NFIP financially solvent. Both sides of the aisle agree that the program is unsustainable as is; FEMA is predicting that the NFIP’s rolls could increase by 130 percent by century’s end. Now — at what might be the worst possible moment to do so — Congress is essentially tasked with deciding who gets to live on the country’s most vulnerable coastlines. When it was founded in 1968, the NFIP set out to fill a gap left by the private market. Unlike most other kinds of insurance, which protect policyholders against the costs of things like car accidents and medical expenses, the payouts for floods come all at once and in huge numbers, meaning many insurers lack the cash on hand necessary to keep up with an influx of claims. While NFIP policies are underwritten by the federal government, they’re administered by private insurers, who make a percentage of the policies they write. Homeowners in flood plains with federally backed mortgages are required to purchase flood insurance, though anyone can purchase an NFIP policy. For those required to take out policies, failure to pay can result in foreclosure. Starting with hurricanes Katrina and Rita in 2005, the program has been hit with a barrage of massive payouts that have sunk it deeper and deeper into the red. Flooding in the Midwest compounded that debt in 2008, followed soon after by Hurricane Ike. Sandy tacked on another $8 billion in 2012, and there have been several major flooding events since. Of course, the NFIP is just one program in a web of agencies dealing with disaster mitigation and response, ranging from FEMA’s emergency relief operations to the Department of Housing and Urban Development, which administers block grants to help residential buildings recover from destructive storms. Beyond the fact that its services are relatively difficult for homeowners to access — requiring a special kind of patience for and finesse with navigating layers of bureaucratic red tape — the NFIP’s benefits aren’t immediately recognizable just after a storm hits. Where few question how much FEMA is spending to respond to a storm like Harvey, the fact that the NFIP’s benefits play out quietly and over the longer term makes it easier to point to its debt overhang as an example of funds poorly spent. The key tension now plaguing the NFIP is that it has always had to balance two often competing goals. “It’s really a conflict between the actuarial tendency of the program and a general desire among policymakers that the prices not be too high,” says Rebecca Elliott, a London School of Economics sociologist who researches the program. Severe Repetitive Loss Properties — those that have been consistently damaged and rebuilt — account for just 1 percent of policies but as much as 30 percent of the funds paid out in claims. Many of the residential properties that carry NFIP policies have also been “grandfathered” in, meaning that policyholders can keep paying existing rates as their flood risk increases. Among the program’s biggest problems is just how high-risk its ratepayers are. In the case of health care, for instance, insurance operates on the basic principle that healthy policyholders with cheaper coverage should help pay the way for those who are sicker and more expensive. Referencing that system, Elliot says, “Right now we have the sickest people in the pool. The people who require insurance are only the high-risk flood zone. We know that’s not a great recipe for insurance pools.” Yet whereas most kinds of public assistance in America benefit poor and working-class people, what’s saved the NFIP from outright attacks like the ones visited on Medicaid has been the fact that its beneficiaries also include the 1 percent and their waterfront homes. Consequently, NFIP reauthorization has always tended to be a rare spot of bipartisan alignment in Congress. “Democrats and Republicans both live in floodplains,” Elliot explains. If anything, the splits are regional, with representatives from flood-prone and politically divergent states like New York, Louisiana, and California coming together to keep rates artificially low. In part because of who the NFIP serves, reform efforts have proven controversial. The last major overhaul of the program was passed into law just before Hurricane Sandy struck New York and New Jersey in 2012. That legislation, Biggert-Waters, sailed through Congress uncontroversially, and would have brought NFIP policies up to market rate on a rapid timeline and eliminated the program’s grandfather clause.

Sanitation workers throw out debris from a flood-damaged home in Oakwood Beach in Staten Island, N.Y., on Feb. 5, 2013. Photo: Spencer Platt/Getty Images

against its implementation. The result of that fracas was the Homeowners Flood Insurance Affordability Act in 2014, which reintroduced grandfathering and allowed rates to rise more gradually. “It appeased the protest for the time being, but the rates are still going up,” Elliott says. “All of the things that homeowners were upset about are still taking place, just on a slower timeline.” Post-Sandy those measures got much less popular. “Families who had their lives destroyed were going to rebuild and finding out that … if they were going to rebuild their homes, they might not be able to afford to insure them,” Elliott told me. Deductibles would have jumped by 25 percent per year. Blowback was so intense that one of the bill’s sponsors, Maxine Waters, D-Calif., became a major voice to rally successfullyits implementation. The result of that fracas was the Homeowners Flood Insurance Affordability Act in 2014, which reintroduced grandfathering and allowed rates to rise more gradually. “It appeased the protest for the time being, but the rates are still going up,” Elliott says. “All of the things that homeowners were upset about are still taking place, just on a slower timeline.” One thing that bill also lifted from Biggert-Waters was a study of how those rate hikes would impact low-income owners. “HFIAA was a recommitment to the idea that the NFIP was now going to be in the business of adjudicating who truly needed support to pay for their flood insurance. Who was getting a good deal but didn’t actually need it? It’s basically a way of introducing means tests to a program that didn’t have it before,” Elliott adds. The larger balance of forces surrounding flood insurance reform might be among the most novel that American politics has to offer. Pushing against an overhaul are major developers and real estate interests, like the National Realtors Association. One of the biggest voices pushing for it has been a coalition called Smarter Safer, an active proponent for Biggert-Waters that encompasses everyone from big environmental groups to insurance companies to conservative free market think tanks. For different reasons, all of them want to see rates that are more actuarially sound and less heavily subsidized by taxpayers. “We’re concerned about the cost to taxpayers,” says Steve Ellis, vice president of the group Taxpayers for Common Sense, who’s worked on multiple rounds of NFIP reauthorization. He says that for many, Biggert-Waters was “too much too fast,” as well as a case of bad timing. Ultimately, though, he hopes the reforms it outlined come to pass. “We want to see a program that charges closer to risk-based rates and sheds as much of the risk off the program and into the private sector,” with the private sector playing an increasingly large role in underwriting policies. Eventually, Ellis hopes the NFIP will become a flood insurer of last resort. Other Smarter Safer members are more gung-ho. Groups, like the Heartland Institute spinoff R Street, a free market think tank, see the current structure of the NFIP as an expensive entitlement and want to get the government out of the flood insurance business entirely. Among the other voices calling on the federal government to shoulder less of the cost is current FEMA Administrator Brock Long, who said just before Harvey made landfall that he doesn’t “think the taxpayer should reward risk going forward.” How exactly Harvey will impact the NFIP’s reauthorization remains to be seen, though even before the storm the chances for wholesale overhaul were slim. Two fledgling proposals in the Senate — one from Sens. Bill Cassidy, R-La., Kirsten Gillibrand, D-N.Y., and Shelley Moore Capito, R-W.Va., and another from Sen. Bob Menendez, D-N.J., with several co-sponsors — would each extend the reauthorization beyond five years, as well as increase oversight over the private insurers who write FEMA-backed claims. If passed, the Cassidy-Gillibrand bill would “[remove] barriers to privatization,” according to draft language, by allowing the companies that currently administer to policies to start underwriting them as well. Another proposal, passed through the House Financial Services Committee and praised by Smarter Safer, would also see the private sector play a larger role. While few people are opposed outright to giving the private sector a bigger role to play, experts are leery of viewing privatization as a solution to what ails the NFIP. For one, private insurers’ involvement thus far has been hugely problematic. A report released last year by New York Attorney General Eric Schneiderman accused FEMA-contracted policy writers of widespread fraud, noting that a “lack of transparency and accountability can and does lead to inflated costs for services.” An earlier investigation by NPR found that private insurers made $400 million in Sandy’s aftermath, and that nearly a third of all NFIP funds spent between 2011 and 2014 went directly to private insurers instead of to homeowners. The more structural danger of privatization is that insurance companies could simply skim off the most profitable rates, leaving the NFIP to pick up the most costly policies. In health care terms, then, privatization could render an already sick pool even sicker. The even bigger policy question is whether higher and more competitive rates will actually incentivize fewer people to live along high-risk coastlines, or just leave the shore open only to those wealthy homeowners and developers who can afford higher rates and round after round of rebuilding. President Donald Trump also repealed an Obama-era mandate for flood-prone construction, so there’s no guarantee that new shorefront structures will be able to withstand future damage. The result of higher rates, Elliot predicts, “is the socioeconomic transformation along with the physical transformation of the coastlines.” Of course, the elephant wading through the flood is the fact that there are now millions of people living in areas that shouldn’t be inhabited at all, no matter the cost. “There’s the uncertainty of living at risk,” Elliot says, “and there’s the uncertainty of what it means to stay in your community when in the near to medium term, it’s going to become more expensive for you to do so — and in the long term, physically impossible.”

People are stranded on a roof due to flood waters from Hurricane Katrina in New Orleans, on Aug. 30, 2005. Photo: Vincent Laforet/Pool/AFP/Getty Images