Congress prepares for bailout of flood insurance program amid Sandy claims

Hurricane Sandy-related claims are pouring into the troubled government-run National Flood Insurance Program — and Congress is girding for revived battles over the program’s debts.

{mosads}The NFIP, America’s only provider of flood insurance, faces an estimated $6 billion to $12 billion in new claims from Sandy, according to the Federal Emergency Management Agency.

The NFIP, which is about $18 billion in debt after Hurricane Katrina, has only $2.9 billion left in borrowing authority, Edward Connor, FEMA’s deputy associate administrator for federal insurance told a meeting last week, according to news reports.

FEMA has not yet requested new borrowing authority and sources say that once the request is made, Congress could act in the lame-duck.

An administration official said the White House Office of Management and Budget is working closely with FEMA to monitor cash balances for NFIP and pending claims. If additional borrowing authority is required to keep the program solvent, the administration plans to work with Congress to ensure appropriate actions are taken, the official said.

As of November 20, NFIP has $740 million in cash available to pay claims and approximately $3 billion in unused borrowing authority. To date, FEMA has processed 131,191 Sandy-related claims and paid $142 million.

To speed passage of legislation in Congress, sources said the NFIP debt limit would likely be tacked onto a deal aimed at averting the  “fiscal cliff” of $600 billion in tax increases and automatic spending cuts that are looming in January.

Some conservatives in Congress believe the government should get out of the flood insurance business. To pass an extension of the program in June, Senate leaders tucked it into a highway and student loan funding bill.

The key committee chairmen, Banking Committee Chairman Sen. Tim Johnson (D-S.D.) and House Financial Services Committee Chairman Spencer Bachus (R-Ala.) appear ready to act.

“Flood insurance is all the more important at a time when so many communities have been devastated by natural disaster, and Chairman Johnson will closely monitor developments to make sure that the NFIP is able to meet its obligations and pay claims to policyholders,” a Democratic Senate Banking Committee aide said.

Bachus indicated the debt limit would need to be raised by several billion.

“Due to Hurricane Sandy, the nation’s flood insurance program, which is already in debt, will also need billions more,” he told reporters last week. “Thankfully, we did pass legislation earlier this year with important reforms to the flood insurance program. And I wanted to announce that we stand ready to work with the administration and our Democratic colleagues in Congress to address these new challenges.”

The reauthorization of the NFIP in June allowed the program to charge higher premiums for new customers and phased-in higher premiums for long-time customers.

But the reform bill stopped short in several areas, and the debt limit bill could give reforms new life.

The June bill did not require residents living in “residual risk” areas to purchase flood insurance, notes Steve Ellis of Taxpayers for Common Sense. 

His group is looking for this reform to be revived in the lame-duck session.

Ray Lehmann of the conservative group R Street said his organization is pushing for FEMA to agree to take out reinsurance on NFIP to mitigate risk. The June reform bill made this optional for FEMA.

Some congressional aides were skeptical that much could be done in the way of further reform given how hard it was to pass an NFIP bill. That legislation was delayed for years as insurers, home builders, environmentalists and real estate agents squabbled over provisions.

The NFIP program is only one piece of Hurricane Sandy-related problems Congress is facing.

FEMA’s Disaster Relief Fund was given $7.1 billion at the start of October but is certain to burn through that amount as it deals with Sandy’s aftermath. Congress can grant the program $5 billion more in direct funding without breaking the August 2011 budget agreement.

House and Senate appropriators expect a supplemental spending bill could be needed next month. They have hatched a plan to use it to move a giant omnibus spending bill funding the government past the March expiration of the current continuing resolution.

The omnibus bill being prepared is at the $1.047 trillion level that was agreed to in August 2011, but which was opposed by House conservatives who want 2013 funding reduced by $19 billion.

As with NFIP, the giant bill and disaster relief spending could all be packaged together with the fiscal cliff bill.

Tags Spencer Bachus Tim Johnson

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