The National Flood Insurance Program (NFIP) will likely need to go to Congress for additional borrowing authority to pay claims from Superstorm Sandy, according to two government watchdog organizations.
“It appears likely that Sandy will exhaust the NFIP’s remaining $3 billion of statutory borrowing authority, meaning it will need to request more money from Congress to pay its claims,” R.J. Lehmann, a senior fellow at the R Street Institute (a Washington think tank), says in a statement.
“In the short term, we would insist the NFIP use its existing authority to raise rates, buy reinsurance and issue catastrophe bonds, so that the private market, rather than taxpayers, assumes the risk of these sorts of catastrophes in the future,” he adds. “Over the longer term, further NFIP reform must include phasing in actuarial rates for all policies and possibly selling some of the NFIP’s 5.6 million policies to private insurers.”
R Street Institute President Eli Lehrer says calculations by his group and others indicate that the Federal Emergency Management Agency (FEMA), which runs the NFIP, has only $1 billion on hand to pay claims.
Steve Ellis, vice president of budget watchdog group Taxpayers for Common Sense, made the same prediction.
Lehrer and Ellis participated in a post-Sandy conference call convened by SmarterSafer.org, an organization representing a diverse group of individuals with interests in disaster mitigation and conservation.
According to Lehrer, R Street’s analysis indicates that the NFIP owes the government $18 billion and currently has a $20 billion cap on borrowing. “It is highly likely that the NFIP will run into a situation that will require having its borrowing limit increased,” he said during the call, adding that this will likely happen before the end of the year.
While an increase in the NFIP debt limit “is inevitable and should be granted,” Lehrer said, “Congress needs to draw a bright line that the program cannot forever prove a burden to taxpayers. It must accelerate its efforts to raise NFIP rates and transition the program to the private sector.
“New Jersey will rebuild, and indeed it must,” he added. “So must the other damaged areas. But we can’t—and shouldn’t—rebuild in just the same way or waste money doing it. Rebuilding the right way is more fiscally responsible and better for the environment.”
Written By: Arthur D. Posta
Original Publication URL: http://www.propertycasualty360.com/2012/11/12/nfip-may-need-additional-borrowing-authority-to-pa
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