Budget office paints grim fiscal portrait of flood insurance program

A new Congressional Budget Office report finds that structures covered under the federal government's flood insurance program are twice as expensive as the typical American home and that the program provides significant subsidies for coastal homes that cost more than $1 million.

The report, requested by Senate Budget ranking member Judd Gregg, R-N.H., paints a grim fiscal portrait of the program that provides insurance for 5.4 million American policyholders.

Because of the claims from the 2005 hurricane season, the CBO noted that the program's current debt was $17.5 billion as of May. Congress has authorized the Federal Emergency Management Agency, which administers the program, to be able to borrow $20.8 billion from the U.S. Treasury.

But the agency said that over the long run, the program's debt is expected to grow about $900 million annually because of current policies.

Older structures in the program -- those that were built before 1975 -- receive less than fair-market rates compared to newer homes under the program, resulting in some high-priced coastal properties receiving a de facto subsidy.

The CBO has estimated that those subsidies contribute to an actuarial imbalance of $1.3 billion that does not go into the program. Legislation to revamp the program, sponsored by House Financial Services Chairman Barney Frank, D-Mass., would phase out subsidized rates on vacation and second homes and increase the amount FEMA can raise policy rates in any given year from 10 percent to 15 percent.

A similar bill passed the House last year, but stalled in the Senate at the behest of Louisiana Democratic Sen. Mary Landrieu, who thought the bill would be too punitive on constituents.

The report detailed that the median value for single-family homes in the program range from about $220,000 to $400,000, compared to the average U.S. home value of $160,000. It also found that the program provides subsidies for expensive homes in coastal areas; 40 percent of the subsidized coastal properties are worth more than $500,000 and 12 percent are worth more than $1 million.

The CBO found that 23 percent of the subsidized coastal properties are not a primary residence for the policyholder.

The report noted that policyholders with subsidies pay only up to 40 percent of their full-risk premium. FEMA has estimated that the annual subsidized premium of $721 last year would likely cost $1,800 to $2,060 when priced at its full risk.

The report also said that for properties in areas where the probability for flooding is high, subsidized properties could cost more than three times the average.

Stay up-to-date with federal news alerts and analysis — Sign up for GovExec's email newsletters.
Close [ x ] More from GovExec

Thank you for subscribing to newsletters from GovExec.com.
We think these reports might interest you:

  • Forecasting Cloud's Future

    Conversations with Federal, State, and Local Technology Leaders on Cloud-Driven Digital Transformation

  • The Big Data Campaign Trail

    With everyone so focused on security following recent breaches at federal, state and local government and education institutions, there has been little emphasis on the need for better operations. This report breaks down some of the biggest operational challenges in IT management and provides insight into how agencies and leaders can successfully solve some of the biggest lingering government IT issues.

  • Communicating Innovation in Federal Government

    Federal Government spending on ‘obsolete technology’ continues to increase. Supporting the twin pillars of improved digital service delivery for citizens on the one hand, and the increasingly optimized and flexible working practices for federal employees on the other, are neither easy nor inexpensive tasks. This whitepaper explores how federal agencies can leverage the value of existing agency technology assets while offering IT leaders the ability to implement the kind of employee productivity, citizen service improvements and security demanded by federal oversight.

  • IT Transformation Trends: Flash Storage as a Strategic IT Asset

    MIT Technology Review: Flash Storage As a Strategic IT Asset For the first time in decades, IT leaders now consider all-flash storage as a strategic IT asset. IT has become a new operating model that enables self-service with high performance, density and resiliency. It also offers the self-service agility of the public cloud combined with the security, performance, and cost-effectiveness of a private cloud. Download this MIT Technology Review paper to learn more about how all-flash storage is transforming the data center.

  • Ongoing Efforts in Veterans Health Care Modernization

    This report discusses the current state of veterans health care


When you download a report, your information may be shared with the underwriters of that document.