The Honorable Richard Shelby
Chairman
Committee on Banking, Housing and Urban Affairs
United States Senate
Washington DC 20510

Dear Mr. Chairman:

We applaud your leadership in looking at the failures and shortcomings of the National Flood Insurance Program (NFIP). Our organizations have long been critical of the program, and the aftermaths of Hurricanes Katrina, Rita, and Wilma have exposed to the nation massive scale of the program’s failures. The claims resulting from these storms have forced the NFIP to borrow an estimated $22 billion from the U.S. Treasury, far more than the total program has paid out over its more than 35-year history. While federal taxpayers have no option but to meet this obligation, it is incumbent on Congress to reform and revise this program to ensure that future taxpayers will not be unfairly burdened by future hurricanes. The availability of subsidized flood insurance in flood prone areas encourages high risk development forcing taxpayers to bailout property owners.

For years, the Federal Emergency Management Agency’s actuaries have been telling Congress and the public that, aside from the subsidized rates for pre-FIRM (Flood Insurance Rate Map) properties, the NFIP was not subsidized. After borrowing $22 billion from taxpayers, it is clear that the program has massive implied and actual subsidies, and must be reformed if it is ever to be self-sustaining. Reforms should increase the number of carrots and sticks – particularly sticks – to ensure the program does not burden taxpayers in the future. These measures should include: collecting actuarially sound rates that finance expected annual payments as well as a catastrophic reserve; removing subsidies for pre-FIRM properties; increasing program participation through greater enforcement and by increasing the floodplain areas requiring coverage; and increasing use of disaster relief funds to mitigate future damage by making communities more flood/disaster resistant and flood-proofing, elevating, and relocating repetitively damaged properties.

Staring at a $22 billion loss, taxpayers are left with the unenviable task of footing the bill for broken promises. Unfortunately, the massive flooding associated with these hurricanes has exposed the dire need to reform this program. By improving the performance of the NFIP, we hope that one day the program can be shifted to the marketplace as is envisioned for the federal terrorism reinsurance program. We look forward to working with you in the coming months to make flood insurance less of a NFIP burden on future taxpayers and ensure that federal programs like the NFIP do not mistakenly create incentives for people and businesses to locate in potential flood zones.

Please contact Steve Ellis, Taxpayers for Common Sense, 202-546-8500 ext. 126 or Paul Gessing, National Taxpayers Union, 703-683-5700, or Elizabeth Wright, Council for Citizens Against Government Waste, 202-467-5300 to discuss this further.

Sincerely,

Jill Lancelot
President/Co-Founder
Taxpayers for Common Sense Action

John Berthoud
President
National Taxpayers Union

Thomas Schatz
President
Council for Citizens Against Government Waste