A Message from President Mike Theo: Open the Floodgates

 Mike Theo  |    March 30, 2017

Our relatively mild winter has lessened the risk of spring flooding in the Badger State, and that’s good news. Yet flooding is front and center in the minds of REALTORS® and many lawmakers in Washington recently as a key congressional committee starts the process of reauthorizing the National Flood Insurance Program (NFIP), which is due to expire at the end of September. The issue typifies an ongoing and intensifying debate in Washington about the role of the federal government in the lives of property owners and private sector businesses. And, while this ongoing debate is not new, there is a new “Wisconsin twist” to the issue. The new chairman of the subcommittee charged with finding an equitable and sustainable solution to this vexing issue is Wisconsin’s own Congressman Sean Duffy (R-Wausau). 

Maintaining the NFIP has been a priority for the National Association of REALTORS® (NAR) for many years. And it should be. Floods are responsible for claiming more lives and property than any other form of natural disaster, as witnessed by the fact that in the last five years alone, flood disasters have been claimed in every state in the country. Flooding is not just an issue for coastal states. That translates into the federal government (ie: taxpayers) spending billions of dollars every year on disaster relief for flood victims. 

The pervasiveness of floods is much of the problem, making private market flood insurance virtually nonexistent, and because one major event could bankrupt an insurance company, insurance carriers set their rates sky high. Property owners respond by not buying the high-priced insurance, thinking their risk is relatively low. That’s a problem. Even at a 2 percent annual flood risk — which is high, there is still a 50/50 chance of not flooding over 35 years. Most owners are willing to take that risk given the price of insurance. When that risk becomes reality, the uninsured seek much more expensive federal flood relief funding. 

That’s where the NFIP comes in. The NFIP provides an insurance market alternative to taxpayer-funded disaster relief. The insurance is administered through the Federal Emergency Management Agency (FEMA) but sold through private insurance companies. FEMA sets the rates and the terms of coverage. 

But the program has been expensive and controversial and is now in need of major reforms. The program runs an annual deficit of about $1.5 billion. In total, the program is $24.6 billion in debt with “no foreseeable way of ever repaying,” according to the House Financial Services Committee, which has jurisdiction over this issue. Moreover, instead of reducing taxpayer risk to deadly flooding, the committee estimates the federal government has spent more than $200 billion on flood recoveries since 2000. And that’s in addition to the insurance costs. 

The political pressure on Congress to fix this program is not just financial. Customers — who are voting constituents — have let their members of Congress know they are wildly dissatisfied with NFIP operations, the accuracy of their flood maps and the manner in which they pays claims — a chorus that seems to be growing louder with each new storm. So while the need for affordable flood insurance is real, so too is the need to reduce the taxpayer exposure to the high and increasing costs of providing that coverage.

One way of doing this is to get the private insurance market back in the game. Congressman Jeb Hensarling of Texas, chairman of the House Financial Services Committee, said the reauthorization bill should “begin the transition to a more competitive, innovative and sustainable flood insurance market where consumers have real choices, and where private capital has a significant role.” 

NAR is taking a strong leadership role in passing the flood insurance reauthorization legislation and will need your help to get the job done. In the coming months, watch for NAR calls to action asking you to contact your member of Congress and push them to support a resolution to this thorny set of problems. NAR has outlined the following principles for resolving this issue:

  • Reauthorize and gradually strengthen the NFIP program so it is sustainable over time.
  • Provide financial assistance to high-risk property owners, including guaranteed loans, grants and buyouts in order to broaden participation and keep NFIP rates affordable.
  • Encourage the development of private market options to offer comparable flood insurance coverage at a lower cost than the NFIP.
  • Create more granularly priced NFIP policies to better reflect the property’s specific risks.
  • Improve flood map accuracy so fewer property owners have to file expensive appeals.

Wisconsin Congressman Sean Duffy’s decisive role in solving this issue is yet another reminder of the leadership role Wisconsin plays in this session of Congress. Congressman Duffy will not only lead the effort on federal flood insurance, he will also be the leader in addressing the long-term solution to the government-sponsored enterprises — better known as Fannie Mae and Freddie Mac. The financial viability of the 30-year fixed-rate mortgage product is at stake in that debate. And Wisconsin’s own House Speaker Paul Ryan is already playing the lead role in reforming health care, which will be followed by his leadership role in the largest and most extensive tax reform debate in a generation. That debate will entail key real estate-related issues like the mortgage interest deduction, the deductibility of state and local taxes, capital gains tax rates and exclusions, and the future of 1031 real estate exchanges. And don’t forget, all of these issues must be coordinated with and agreed to by the White House, where Wisconsin’s own Reince Priebus, President Donald Trump’s chief of staff, will play a pivotal role. 

Congress is about to open the floodgates on these mega issues soon. Make sure you’re ready, willing and able to help them make the right choices.

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