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U.S. House of Representatives,
Subcommittee on Housing and Community Opportunity,
Committee on Banking and Financial Services,
Washington, DC.

    The subcommittee met, pursuant to call, at 10:00 a.m., in room 2128, Rayburn House Office Building, Hon. Rick Lazio, [chairman of the subcommittee], presiding.

    Present: Chairman Lazio; Representatives Bereuter, Baker, Kelly, W. Jones of North Carolina, Terry, Roukema, Frank, Vento, Goode, and S. Jones of Ohio.

    Chairman LAZIO. Good morning. The hearing will come to order.

    Today, the subcommittee meets to hear testimony on the National Flood Insurance Program, with a focus on the issues of repetitive losses. Since 1968, the National Flood Insurance Act has made it possible to provide adequate flood insurance to American homeowners who would otherwise be left without coverage and protection in the case of serious residential flooding.

    Twenty-one years later, the flood insurance program partners with 19,000 communities, holds 4,000,000 policies and provides approximately $5 billion in property loss coverage.
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    No one can fully appreciate the flood insurance program until they experience the type of flooding that recently occurred on the Eastern Seaboard as a result of Hurricane Floyd. In North Carolina, for example, we witnessed an entire region devastated by what experts call the 1-in-500-year flood event. While the hurricane brought the winds, it was the rivers cresting in its aftermath that left such a broad path of destruction. Unfortunately, many of the residents were never advised to buy flood insurance. Without flood insurance, many of these residents, mostly low-income families, are left with little assistance to rebuild communities and homes.

    We certainly must do a better job of advocating the need for residential flood insurance.

    While the flood program has managed to operate self-sufficiently since 1986, it has, from time to time, borrowed funds to pay its insurance claims. As I understand, the program's debt is currently at about $540 million, without factoring the most recent Hurricane Floyd calamity. This debt will surely increase significantly after those payouts.

    One major contributing factor leading to the program's debt, however, is the occurrence of multiple losses or ''repetitive losses.'' We all have seen the media portrayals of properties that consistently experience flooding, receiving insurance payouts totaling more than the value of the home. With annual estimates as high as $200 million attributed to repetitive losses, it is important that we, this Congress and the Administration, work together to address this issue in a way that continues our purpose to provide adequate residential flood insurance. On the other hand, we owe it to the taxpayers to reduce unnecessary liabilities. Common sense approaches will often keep families in their homes at available and affordable rates, while minimizing flood damage.
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    To that end, I would like to commend three of my colleagues who are here today for bringing this issue to the attention of the subcommittee. Representative Bereuter, who is a Member of the subcommittee, and Representative Blumenauer introduced H.R. 2728, ''Two Floods and You Are Out of the Taxpayer's Pocket,'' and Representative Bentsen introduced H.R. 1297, ''Repetitive Flood Loss Reduction Act of 1999.'' I want to congratulate all of you gentlemen for your efforts.

    Today, we will hear comments on these two legislative proposals from the Administration, GAO and independent experts. It is my hope that out of this hearing, the subcommittee will receive the type of information necessary to craft a sound public policy approach.

    I just want to note that I understand that Director Witt, by prior arrangement, will have to excuse himself by 11:15, and so we are going to be moving as quickly as we can, without any objections, and I see no objections. We will ask that all other opening statements by Members and written testimony from our other witnesses be included in the record in order to maximize our question and answer period.

    Chairman LAZIO.I want to thank the gentlewoman from New York for her interest as well and for her being here.

    Let me ask if there are any other comments that Members of the subcommittee want to make? The gentlewoman from New York is recognized.

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    Mrs. KELLY. Mr. Chairman, I do have an opening statement which I would like unanimous consent to insert in the record. However, I want to say that my interest in this legislation stems not only from my belief that Mr. Bereuter's legislation is a good piece of legislation, but also from the fact that I represent upper Westchester, Putnam, lower Dutchess and a portion of Orange Counties that were really devastated by Hurricane Floyd. So I am interested in our crafting a very good, solid piece of legislation that can address these concerns.

    With that, I yield back.

    Chairman LAZIO. I thank the gentlewoman.

    Once again, I would like to compliment Congressman Bereuter in particular, whom I know has been very focused and has made extraordinary efforts to bring this issue to the subcommittee's attention, is an advocate of flood insurance, but has always cautioned this Member about the need for us to focus some of our efforts on the issue of repetitive losses and mitigation.

    So with that, I would like to recognize the gentleman from Nebraska, one of the finest Members of this House and certainly of this subcommittee. Mr. Bereuter, you are recognized.


    Mr. BEREUTER. Chairman Lazio, thank you very much.
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    Good morning, Members of the subcommittee on which I serve. It is a pleasure to be before you today on the subject of the National Flood Insurance Program—NFIP. In August of this year, Congressman Blumenauer and I introduced, as you mentioned, the ''Two Floods and You Are Out of the Taxpayer's Pocket Act'', taking a lead from the practice of our former colleague, Andy Jacobs, who used creative titles to get some attention to an issue.

    NFIP repetitive loss is in a scandalous condition. It has been waiting a long time to be handled. It received lots of attention from the national media last year, perhaps you remember. The bill represents a continuation of my long-term interest, as you mentioned, and the past efforts in the House to reduce the extraordinary cost of repetitive losses from the NFIP, as administered by the Federal Emergency Management Agency, FEMA.

    At the outset, I want to thank Congressman Blumenauer for his dedication and devotion to the principles and details of this legislative effort. In addition, I would like to thank the Director, James Lee Witt, and his staff for their cooperation and support for H.R. 2728 and for Mr. Witt's participation in this hearing today. In fact, some of the ideas that I heard from Mr. Witt, first at a social gathering, followed up by presentations he made elsewhere, caused me to renew my interest this year. I think it is important to note that FEMA has been involved from the start in advising the two of us as we began the process of reconsidering the issue and the drafting of the bill.

    If enacted, the legislation will help turn the tide against the huge costs associated with repetitive loss properties. The policyholders of many of these repetitive loss properties are currently not being charged the actuarially sound rates under the NFIP. While Chairman Lazio was right on the conditions in which he placed his statement about self-sufficiency of the NFIP, if you trace back overall, the NFIP has not been self-sufficient. At an earlier stage it received large amounts of taxpayers' funds as well, not just borrowing.
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    The legislation addresses repetitive loss properties in a simple, straightforward manner. The owners of a repetitive loss property will be charged the actuarial risk-based rates for their national flood insurance policy if two conditions are met. First, two or more NFIP claims must have been paid on an individual property, which is thereby defined as a repetitive loss property. Second, and this is very important and, I think, very generous, the policyholder of the property has refused a buyout, elevation or other flood mitigation measure funded by FEMA.

    By the way, contrary to what I thought initially, there is no private policyholder cost-sharing. We were generous. We said if there are flood mitigation efforts, the Federal Government will pay 75 percent of the mitigation cost, with a local government share of 25 percent. Still, if these people say ''We are not going to take assistance'' and they have had over two repetitive losses, then—and only then—will they finally begin to pay actuarially sound rates.

    I support this bill for numerous reasons, but I would list just five and then give you a little detail on those five.

    First, policyholders of repetitive loss properties are able to take advantage of and abuse the NFIP by making claim after claim on the same flood-prone property.

    Second, Federal taxpayer money will be saved under the bill by reducing the NFIP unpaid debt to the U.S. Treasury. The NFIP debt to the Treasury as of August 31 was $541 million. The figure has dropped recently, as previously, on May 31 of this year, it was as high as $738 million. In addition, taxpayer dollars will also be saved under this bill due to a reduction in Federal disaster assistance payments. If we stop subsidizing these properties in those areas, we are not going to be paying as much in disaster aid.
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    Third, the Federal Government is encouraging development by giving subsidized flood insurance to these high-risk areas.

    Fourth, it is predicted that the U.S. will experience more hurricanes and other storms in the immediate future decades, thereby resulting in an even greater number of repetitive claims.

    Fifth, there is a demographic trend of individuals living closer to the United States coastlines, which will probably result in a greater number of repetitive loss claims.

    Now, I have some details on each of those five points. I know that my time is brief here, so I am going to ask unanimous consent to revise and extend my remarks. But I want to give you just one example of a repetitive loss structure.

    There are more repetitive loss structures in certain States. You might expect Louisiana has the largest number by far, and I think the FEMA director will give you some recent experiences in his contacts in Louisiana. But there is one property, a home in Baton Rouge, Louisiana, which has been subject to a huge number of repetitive losses. It has been flooded seventeen times in seven years. Thus far, the owners of this home have collected $200,000 from the NFIP, seven times more than they paid for the structure. We have structures up and down the coast along the Atlantic and the Gulf States where, in fact, the claims that have been paid on these structures or homes is many, many times more than the value of the home, and they are receiving a subsidy by non-repetitive loss flood insurance policyholders that live in your district, Mrs. Kelly, that live in my district, because we do not charge actuarially sound rates. In fact, the NFIP encourages that kind of development by what the Government does.
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    Mr. Chairman, I will stop talking so my colleagues can be heard from. Mr. Witt will have a chance to answer questions.

    Chairman LAZIO. Thank you very much. Let me also respond to the unanimous consent request by Members and by Mr. Bereuter in saying that all of the written testimony and all of the opening statements will be included in the record by unanimous consent. Without objection, so ordered.

    We now turn to Mr. Blumenauer.


    Mr. BLUMENAUER. Thank you, Mr. Chairman. I appreciate your courtesy in allowing me to join you this morning.

    One of the things that I feel most strongly about here in Congress is we have an opportunity to promote community livability not by new rules and regulations and fees and taxes, but by simply having the Federal Government take common sense steps to better implement existing programs. It is a great pleasure for me to join with your colleague, Mr. Bereuter, from whom I have learned a great deal about the legislative process and the history of this issue.

    My concern is that the Federal Government does people no favors by encouraging them to live in areas where God has shown that he doesn't want them to live. We have had instance after instance where repetitive flood loss occurs. My colleague, Mr. Bentsen, could probably talk about a home in suburban Houston that has $806,000 of repetitive flood loss, eighteen years worth of claims, sixteen different occurrences for a structure that is worth only $115,000. But I think if we focus just on the financial costs to the flood insurance program, we miss a larger point.
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    By encouraging people to live in harm's way, we encourage natural disasters. It is one of the reasons why disaster relief payments have increased 550 percent in the course of the last ten years. There is a reason why these events occur, and by our using the flood insurance program to subsidize people to live in these areas, we continue a pattern that is also environmentally unsound. And we are doing the individuals no favors.

    We have had 41 people lose their lives in the tragic floods that have occurred in North Carolina. It isn't just the individuals who choose to live there whose lives are put at risk. By choosing to put themselves in harm's way, they also jeopardize family members, neighbors, people who reach out to try and save them when flood events occur.

    By taking the simple step of using FEMA's resources to move people out of harm's way, targeting where it will make the most impact, we will have a very important, if you will pardon the phrase, ''ripple effect.'' Because we have the opportunity to move these people out, we minimize the risk of future natural disasters.

    We have seen FEMA's experience with relocation in the Mississippi River Valley where the payback to the Federal Treasury occurs in five or six years. It is exceedingly cost effective in the long run.

    I think it is important for us to give the tools to FEMA and other Federal agencies to be able to do their job right, by being able to encourage more people to relocate, to flood-proof their properties, or if they fail to do that, then these individuals at least need to step forward and pay full actuarial rates.
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    I think this is something that everybody in America can agree with: the business community, people in areas that are flood prone or not. I think it is an example of where the Federal Government can get more out of the taxpayer dollars; it can be more effective in terms of environmental protection.

    I have a more extensive statement that I have submitted for your record. I look forward to joining you to listen to some of the real experts and heroes in this effort, I pledge you all of my efforts to make sure that, if you are willing to move forward with this, we will have a piece of legislation that will make a big difference for people across America.

    Thank you very much.

    Chairman LAZIO. I thank the gentleman.

    I now would like to recognize the gentleman from Texas, a Member of this panel who has done some exceptional work in a number of different fields, particularly in housing, Mr. Bentsen.


    Mr. BENTSEN. I thank the Chairman.

    Mr. Chairman, let me commend you and the Ranking Member, Mr. Frank, for holding this hearing to examine annual losses suffered by the National Flood Insurance Program as a result of repetitive loss structures. I am going to submit my statement for the record, but I do want to make a few points off of it. I concur almost entirely with my two colleagues on this issue, although my bill, H.R. 1297 is slightly different.
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    But we do know that the repetitive flood loss program is costing the NFIP program quite a bit, up to $200 million a year with the top 10,000 structures costing over $65 million. We have all heard the horror stories. I might add that some of the horror stories are actually in my district, and it would be rare for a Member of this body to come up and say, ''I think we need to reform something that is going to affect a homeowner in your district.'' Usually it is somebody else's district, because we obviously have the political considerations. But I think also, as a supporter of the flood insurance program, and there are about 30,000 households in my district which are in the flood insurance program, that it is incumbent upon us to take the lead in reforming this program so it really does benefit the homeowners who deserve it, and that means that we need to take the lead in trying to curtail this repetitive loss program.

    Mr. Blumenauer pointed out the one home which was along the San Jacinto River in my district that has been rebuilt sixteen times, at seven times the actual value of the home. There are others in my district that have been through this, and they were all laid out by one of your next panelists, David Conrad, and the National Wildlife Federation report entitled ''Higher Ground.'' It showed what the problem was.

    I want to applaud Director Witt for the work he has done at FEMA, but the fact remains that FEMA lacks both the—really the policies, but more importantly, the authority to do much more.

    So what I have tried to do in H.R. 1297 is really two different things. One, we have taken a program based upon what FEMA would like to do to set up a pre-disaster mitigation program, giving FEMA the authority to work with local flood control agencies through a grant process where they could go in and engage in mitigation, whether it is razing structures, buying out structures, trying to cut costs ahead of time, and we would authorize $100 million for that source.
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    The second thing that we do, which is not dissimilar from Mr. Bereuter and Mr. Blumenauer's bill, is to say that for repetitive loss properties, eventually you are going to have to take a buyout. Now, we get there a little bit differently. We don't just say two events and you either take a buyout or you are out of the program and at the market rate. Rather, we tried to come up with a formula to define repetitive loss, and the formula that we came up with was a structure that has sustained flood-related damage on at least three or more occasions with a cumulative cost of repairs of greater than 125 percent of the market value.

    I will be honest to say that that may not be the best formula, but I think it is a fair attempt to try to take into consideration the rights of the property owners, at the same time as we take into consideration the rights of the taxpayer who is funding this program. Ultimately, that is what the subcommittee is going to have to do if we move forward on a bill.

    We give the director the authority to buy out the property at up to 125 percent of the value, and if the homeowner fails to take a funded buyout, and I will tell you, because we have had this experience in my district where people want buyouts, but the funding is not there for it, so you end up with a repetitive loss as well. But if they do not take a buyout offer and they are defined as a repetitive loss property, then they would see their premiums go up 50 percent and their deductible go up $5,000. And in a subsequent event where the policyholder filed a claim, if they did not take a funded buyout offer at that time, then they would see an additional increase of 150 percent.

    So not too dissimilar from Mr. Bereuter and Mr. Blumenauer, we provide an incentive to the policyholder to take the buyout without kicking them off.
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    Finally, we provide a mechanism to recapture the additional premium and deductible and have it flow back into the program.

    Now, I have not had this scored by CBO; I don't know whether they could accurately score this or not. But what I have tried to do is to develop a mechanism which maybe doesn't have as harsh a hammer as Mr. Bereuter and Mr. Blumenauer's bill, tries to provide a financial incentive to the policyholder, take the buyout, tries to give FEMA the authority and the resources to engage in more buyouts and more predisaster mitigation, and I think in the long run will save the taxpayers' money while protecting the true benefits of the NFIP program.

    I look forward to working with the subcommittee on a bill that all of us at this table I think can support.

    Chairman LAZIO. I thank the gentleman. I thank the panel for their excellent work and excellent testimony.

    Let me recognize myself for the purpose of questions and begin with this sort of observation. Apparently, according to the census data that we have, by the year 2010, which is eleven short years from now, about 75 percent of Americans will be living within about 100 miles of the coastline, so we have an acceleration of the amount of Americans that want to live near water. Many of those communities are established communities over a great period of time.

    So I pose the first question as to, are we scratching the surface of resources that might be necessary to relocate not just one home or two homes in a flood situation, but an entire community that may be classified as repetitive loss-eligible, and how many communities, if you know right now, would be eligible for these mitigation provisions if we were to enact this bill and have it effective immediately?
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    Mr. BEREUTER. I think Mr. Witt has the best answer for that, but it seems to me that most communities would be eligible.

    We provide additional resources out of the fund and an appropriation to fund the program for mitigation, but if you really got into community-wide mitigation in many of these areas that have so many repetitive loss structures, we are talking about a much larger commitment.

    On the other hand, if you take a look at the Federal disaster payments that we are making now, perhaps it is a good comparison, then it would be less expensive for us to spend more on mitigation and therefore in the process, begin to reduce the amounts we are paying on Federal disaster relief.

    Could I mention one other element that has not come up? In Section 6 in our legislation we say that if, in fact, a buyout or mitigation activity is not accepted, then that property loses eligibility for disaster funds and probably that is a bigger incentive for them to participate in a mitigation effort or to be bought out if they are a repetitive loss structure. Thank you.

    Chairman LAZIO. Mr. Blumenauer.

    Mr. BLUMENAUER. It seems to me, Mr. Chairman, that what would happen under this legislation would be to start moving. I think you are right, it is the tip of the iceberg and with a whole host of environmental issues, one doesn't know about the impact of global warming and a whole range of other things, but if you take the flood insurance program and you give FEMA the resources and the authority to start targeting the worst offenders, to start moving in this direction, I think it can have a huge cumulative effect by getting rid of the homes that are the greatest drain on the taxpayers. We must also set in place an expectation that the Federal Government is going to be more surgical in terms of the investment that we make. There is no reason that we cannot be more sensitive in how we allow Federal resources to be used in areas where they might be put in harm's way.
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    We are not going to overnight elevate the City of New Orleans, for instance, above the level of the Mississippi River. But, if we don't take the course that you have the power to begin, what is going to happen by the year 2010 is we will have compounded the problem many, many times over and the Federal Government will have been an unindicted co-conspirator in terms of making it worse, and the burden that will come to us when people justifiably ask for help will be much, much greater.

    Mr. BENTSEN. My staff tells me there are about 18,000 communities that would be affected, obviously not every part of the community, and you also need to make a determination between pre-FIRM and post-FIRM, because theoretically post-FIRM properties are constructed with mitigation in mind.

    The only other thing I would say is this: A big component that I think all of us are talking about that I haven't focused on, and I mentioned this partially, is in a lot of cases, I think a lot of people would take buyout, but it is not always on the table. Congress has limited the amount of buyout funds available.

    I have a part of my district, Crest Haven in Pasadena, Texas that has been flooded out several times because of development around it and the way that the floodplain has moved. At first, they didn't want to take buyout. Then they wanted buyout, but they could never get funds. We just finally were able to get them a grant under the Small Disaster Assistance Program and you have a number of homeowners now who are stepping forward and taking buyout, because what they also find is once your house has been flooded a couple of times and been rebuilt, it doesn't have much of a market value at that point in time. So you are kind of stuck at that point.
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    So I think a big component of all of these is the buyout, and we have seen the States move in that direction.

    Chairman LAZIO. I am going to try and respect the time, but I would make one last comment, that I think we need to think through how we can properly incentivize local governments who have the ability to affect zoning and health concerns to ensure that they do their job in not exacerbating the problem that already exists.

    Let me ask if we have questions.

    Mrs. Roukema.

    Mrs. ROUKEMA. I do have just one observation to make. I don't know if these gentlemen can address the question, but I would like to know whether or not regional cost differences were under consideration when you put your bills together? I come from New Jersey where we have higher costs. It is one of the highest cost areas in the country. It seems to me that there is no suggestion here that there will be regional cost factors or an assessment based on regional costs. Just one number across the country for the buyout question or for the insurance funding.

    Has that been taken into consideration by you, to do something on a regional basis, rather than applying the same standards across the country, but base it on the regional cost factors?

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    Yes, Mr. Bereuter.

    Mr. BEREUTER. There are two types of courses of action that would be funded. One is mitigation, simply change or raze the structure. But the other buyout kinds of activities would depend upon the value of the home. There is no standard buyout payment. If this home in New Jersey is worth $197,000 versus one in State X that is only worth $130,000, the buyout from the Federal Government would reflect that value. And Mr. Bentsen may have a response.

    Mrs. ROUKEMA. Well, the note I have here is we are talking about a $1,000 claim, is that correct? That is one standard that you apply, and that would seem to be much too low a standard in most areas of New Jersey.

    Mr. BEREUTER. That doesn't apply to our legislation, so I will let the gentleman from Texas respond.

    Mrs. ROUKEMA. I see.

    Mr. BENTSEN. Mrs. Roukema, the way that my bill is structured is that if you have claims that total 125 percent of the value of your home within a three-event period, and FEMA offers you a buyout, then you must take it or you pay the higher rate. So you have to meet that first threshold.

    Second of all, FEMA can buy you out at up to 125 percent of the value of the home. So it is not a national value.
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    Mrs. ROUKEMA. It is a percentage.

    Mr. BENTSEN. It is whatever the market value in the area is.

    Mrs. ROUKEMA. Thank you. That is helpful. I would like to get back to all of you individually to answer questions that our person in New Jersey that deals with these issues has raised with me, and we will get back to you. Maybe there can be a meeting of the minds here. Thank you very much.

    Chairman LAZIO. I thank the gentlewoman.

    Mrs. Jones.

    Mrs. JONES. Thank you, Mr. Chairman.

    Chairman LAZIO. Would you like me to go to Mr. Terry?

    Mrs. JONES. Absolutely. Thank you.

    Chairman LAZIO. I recognize the gentleman from Nebraska.

    Mr. TERRY. All right. Well, it is a comment and maybe a question to the dean of the Nebraska delegation, Congressman Bereuter. Many of us in Congress know him as holding an expertise in foreign relations, particularly Asian issues. But when he was a Member of local government and State government, he was known as an expert on community planning, and, Mr. Chairman, you raised a question of the involvement of local communities in this process, and, Doug, I certainly welcome working with you on this issue. We share a river that is the main cause of the flooding and damage in Nebraska. So I think you are onto something here.
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    But the Chairman did raise a good question. What is the role of local governments and State government? I am thinking through a couple of these housing areas that are the repetitive users of this program, and I wonder under what zoning control they are. I can't think of any, but maybe there is an area that we can encourage without dictating and mandating as sometimes we wish to do in the Federal Government. But what is the proper role?

    Mr. BEREUTER. Well, you will have to qualify for the National Flood Insurance Program. The local community must take a number of steps to qualify their residents to have eligibility. They must, for example, have enacted zoning ordinance and related subdivision regulations in order to protect, for example, the 100-year floodplain. Of course they can't do that unless the State gives them adequate floodplain or general zoning authority. We have done that in Nebraska. Of course, my community of Fremont, which is, as you know, entirely flat in the Platte Valley, has had to go into a variety of flood control measures as well as zoning in order to qualify the residents. They are trying now, by a variety of activities, to reduce the 100-year floodplain, but still those people that live within it have to be protected to guard against future development.

    You may recall also in the Platte River when we have had some people flooded on your side of the river and my side of the river, many of them are happy to have buyout funds. But as Mr. Bentsen mentioned, oftentimes the buyout funds have not been there for willing sellers. We are trying to address that problem by resources.

    Mr. BENTSEN. If I might just add, first of all, I think it would be difficult to impose local land use controls at the Federal level. Certainly that is factor. I think it would be as difficult to do that as it would be to teach Nebraska how to play football, for instance.
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    Mr. BEREUTER. Wait until next year.

    Mr. BENTSEN. It's like Brooklyn.

    But I do think it would be difficult.

    But I think what we try and do in our bill, and I think in Mr. Bereuter's and Blumenauer's bill as well, is through the pre-disaster mitigation that is something that FEMA has been pushing, it gives FEMA some ability to work with local governments and local agencies to develop plans that might take into consideration local land use planning. And I will tell you in Harris County in my district where we have a Republican county judge who I don't think is any fan of zoning, and Houston is the largest unzoned city, and that may be—Houston has to figure that out on its own, but they are finding now that they have to come up with unique ideas of floodplain management and development management, because as the city grows and develops, obviously the water starts to spread in many more places.

    Mr. BLUMENAUER. If I may, Mr. Terry, it seems to me that you are touching on an area that does require some thoughtful analysis beyond just what we are doing with the flood insurance program. Because I do think, I agree with Mr. Bereuter, that we have a basic framework here that can work.

    But look at what has happened in North Carolina where they have virtually no regulations on these huge lagoons of hog waste. If there are communities that choose not to have what most other areas would think would be reasonable environmental regulations on large amounts of animal waste, should the Federal Government then step in and pay an extra premium, because people have chosen not to have some sort of reasonable framework?
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    I think that there is a balance that we can choose here where we should not dictate one size that fits all in terms of what local zoning and planning should be. I don't want the Federal Government to do that, nor do I think any Member of Congress wants that. But we have every right as Members of Congress to make sure that State and local officials have some reasonable framework in place that does meet, for example, environmental needs, or that people aren't building on sand dunes or having huge amounts of animal waste and then expect the Federal taxpayer to bail out people who are making decisions that I think most of America would think are inappropriate.

    Mr. TERRY. Thank you, Mr. Chairman.

    Chairman LAZIO. Thank you.

    Mrs. Jones.

    Mrs. JONES. Mr. Chairman, I will be quick. I would like to salute my colleagues for working on this particular issue. Just as a follow-up to Mr. Blumenauer, I suppose the situation is much like when we talk about transportation and the ability of States to receive dollars for highway systems and the like with a requirement that they maintain some type of speed, that they maintain some type of safety that is comparable to this flood area.

    In the proposals or the bills that are before us, just a kind of short question, because truthfully I haven't had a chance to read them before I ran in here this morning, is there any provision for I suppose what I would describe as a commission to discuss the issues of the problems with floods in a particular jurisdiction and an involvement with FEMA in order to be able to set maybe not a standard, but at least a level of discussion or a playing field of discussion for a national program? Any of you can tackle that.
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    Mr. BEREUTER. There is not a Federal commission established by either bill, but FEMA does consult with the local communities, or counties that have the floodplaining jurisdiction and try to reach some understanding on eligibility for the National Flood Insurance Program. But what I think it comes down to is that FEMA needs additional authority and resources to deal with those structures that are already there, probably before zoning really made the right decision in that community, and to try to avoid repetitive losses which then all policyholders help pay for, as well as the taxpayer.

    Mrs. JONES. I know our next speaker has some short time. I am not proposing that we create another commission, don't misunderstand that at all; far be it from me to do that. But it just seems to me that as we go through dealing with this type of issue, we might try to figure out through the systems that we have in place a little more interaction and a requirement that the Feds and local governments do some work in the area.

    Mr. BENTSEN. Mrs. Jones, I would just say again, our bill strongly encourages FEMA to work with local agencies, and as FEMA will tell you, there are a number of very sophisticated local agencies dealing with this in my area and all across the country, and I think they would have to. I don't think we need to create another commission, but through the pre-disaster mitigation program, we create a partnership, just like we have in the flood control program.

    Mrs. JONES. Thank you very much.

    Thanks, Mr. Chairman.
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    Chairman LAZIO. I want to thank the panel again for their excellent testimony and their great work on the subject.

    I would call our next witness to the witness table. I would like to acknowledge if I can, Jo Ann Howard, who is the Insurance Administrator for the Federal Insurance Administration accompanying Mr. Witt today, and I appreciate very much your presence. I want to welcome the Director of the Federal Emergency Management Agency, James Lee Witt, who I have to personally say is one of the finest members of the Administration, who it has been a pleasure to work with on a number of different issues and has been very helpful in bringing other Members into the loop, dispensing information, keeping cool under fire and being in some very difficult situations and bringing peace of mind to many people that are faced with one of the most devastating losses in their lives.

    So I welcome you here. I thank you for your work and your public service. You are now recognized.


    Mr. WITT. Thank you, Mr. Chairman. Also with me is Jo Ann Howard, the Federal Insurance Administrator, and Mike Armstrong, Associate Director of the Mitigation Directorate.
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    Good morning, Mr. Chairman and Members of the subcommittee. I am pleased to be here this morning to deliver what I know is becoming a familiar message. This is the same message I have given to the Appropriations Committee and to the authorizing committee, and also——

    Mrs. JONES. Mr. Chairman, could you ask Mr. Witt to pull the mike a little closer, please? I must be hard of hearing.

    Mr. WITT. Is that better?

    This is the same message I have given to the Appropriations Committee and the authorizing committees, and I have also stated this message many times to local communities, State and public interest groups and organizations. The message is a lesson that we have learned many times: Prevention really works.

    This subcommittee, with the hard work of your former Chairman, Mr. Kennedy, and Chairman Lazio, has given us critical help with the mitigation assistance portions of the 1994 Flood Insurance Reform Act. Now, in the National Flood Insurance Program, we not only help people ensure their future, but we can help them to avoid becoming flood victims. Nothing has affected me more in the last six-and-a-half-years as director of FEMA than visiting the same disaster sites time after time. Time and again, I have seen this cycle, the tragedy that people go through in communities and States, in communities where we have to rebuild their homes, their infrastructure, and then disasters hit and tear it down again.

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    Over the last ten years, FEMA has spent over $25 billion to help people repair and rebuild their homes and communities after natural disasters. Insurance companies have spent billions more. Businesses have lost revenue. Employees have lost jobs. State and local governments have spent billions of dollars as well. Worst of all is a loss that can never be recovered and it is the lives of family and friends and neighbors.

    In 1997, FEMA started a program called Project Impact, building a disaster-resistant community. In Project Impact, we implemented a nationwide, common sense, damage-reduction effort where local government and private sector partners come together to build a disaster-resistant community. We already have helped States and cities and towns to prepare and to protect themselves against the next disaster, using mitigation funds made available under the Stafford Act.

    Through Project Impact and the legislation before this subcommittee today, we help communities to protect themselves from the devastating effects of natural disasters by taking actions that dramatically reduce disruption and loss, but we can do more. We have to do more, because the cost of disasters to the America people and their communities is too high. We have a real opportunity to make a difference, and that is why I am very excited to participate in this hearing this morning.

    I want to congratulate Congressman Bereuter and Congressman Blumenauer and Congressman Bentsen for their leadership and hard work in introducing this legislation that will reduce the burden of repetitive flood losses. We also owe thanks to their staff. They have worked very hard on this issue and on this bill.

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    I remember Congressman Bereuter approaching me at a dinner for President Havel of the Czech Republic late last year to talk about this issue. Early this year, Congressman Blumenauer started moving on this issue and approached Congressman Bereuter and convinced him of its timeliness. Mr. Bereuter has had a lot of experience in repetitive loss, and they are determined to help solve this problem, as well as Congressman Bentsen.

    I want to thank the National Wildlife Federation, especially David Conrad, for their help in analyzing flooding in this country in their study, Higher Ground, and a lot of credit goes to our State partners, the Association of State Floodplain Managers. They have helped to define and explain this issue and have given us good, practical ideas for addressing it.

    Let me finish by saying this: There is a home in Pascagoula, Mississippi that I was in. The home is the home of Mr. and Mrs. Graham. They are an older couple. They are retired. He has emphysema. They have lived in their home 51 years. They have flood insurance. A small, white frame house. When I walked into their home they had all of their furniture sitting on three bricks, stacked. Their home had flooded 41 times in 51 years. The last two times it flooded, they were too embarrassed to file insurance claims, and they still had flood insurance. But this December, they will be moving into a new home, because of mitigation and prevention, and they will never flood again.

    This is an investment in our country, our community, and individuals. People I have talked to time and time again that have been flooded want out, but we do not have the means or the opportunity to get them out. Congressman Bentsen is exactly right when he said in Houston, we bought out X amount of houses from the 1994 flood, but we didn't have enough money to buy them all out, because we just didn't have the funds.
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    So this is important. It can save lives, save taxpayers' dollars, and it can strengthen communities, and it can enhance our environment all at the same time without embarrassing or putting anyone in a difficult situation, because people want help, and they are caught. They are caught in a situation where they still have a mortgage on property, and they are caught in a situation even when they fix it back up. People know the property will flood and they are not going to buy it. They cannot sell it. So the value of the property is decreasing, even though they are making payments on the property. The equity in that property is gone, and yet we continue to spend flood insurance on repetitive losses on claims, we continue to spend individual assistance funds to take care of people and house them during federally-declared disasters, and then we spend public assistance funds on cleaning up the debris that they tear out of their house to get ready to rebuild it.

    So we need to make this investment. I thank you, and I thank you for this hearing, and I thank you for your interest in this legislation, Mr. Chairman.

    Chairman LAZIO. Thank you very much, Director Witt.

    I want to make two comments if I can, and I will try and keep them brief. The first, which I would like to have you just react to, has to do with the complicating factors that arise when you have a community that is susceptible to repetitive losses, which has been established and has a history. One case that I have read about in The Washington Post, involves Princeville, the first American town established by African Americans. The community was devastated by Hurricane Floyd, and from what I am reading, there is a very significant divergence of opinion within the town as to whether some folks would like to take mitigation, and whether other folks are wedded to the history of the town and their own legacy.
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    So I would like to ask you to comment on that, because I think it points out how difficult this issue really is. It is not just a matter of buying out one house on one beachfront that was built three years ago. In some cases, these are older, established towns with a sense of community and neighborhood and friends and history and places where people were born, and a whole host of different issues.

    I would like your comment on that, if I could.

    Mr. WITT. I was in North Carolina yesterday speaking to the North Carolina Conference of Mayors. I had an opportunity to sit down with the mayor of Princeville. They are going through a very difficult situation. Their entire town was flooded. They would like to rebuild, but some of the people said, ''We are not going to go back, even if they rebuild.'' They are very divided on this. The mayor and the city council are having to make a very difficult choice.

    But I think it is prudent for us to give them the best advice that we can give them, as well as the United States Corps of Engineers. That town had a levee that protected it from the river that was built to 100-year flood elevation. This was a 500- to 700-year event. Statewide, there were about 53,000 homes flooded, with about 7,100 destroyed. We have identified about 11,000 homes in the 100-year floodplain that are good candidates to be bought out.

    The Mayor and I visited yesterday about this. They are very, very concerned, because of the historical preservation of the community, and as well the safety of the community in building it back. So our staffs are working with them, as well as the Corps of Engineers, to try to come up with the best advice to see if we can safely build back. It would mean increasing the size of the levee, and examining whether that would still protect the town, and just basically doing an analysis for them to give them our best advice.
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    Chairman LAZIO. My last question, because I know we have some time constraint here, has to do with rates. Whether you can set actuarially-based rates and become actuarially sound from a programmatic standpoint, are they synonymous, and if not, what type of capital infusion would be required in order to make the fund actuarially sound, even if you went to an actuarially-based premium rate?

    Mr. WITT. I think three things are happening. One is, first, we have gone back and identified the repetitive loss property. We have also gone back and looked at the—as some of it is called, the subsidized premiums. Jo Ann likes to call them discounted premiums. And with the mitigation and prevention at the limited site that we are doing through Project Impact and also federally-declared disasters, I think we are starting to make some strides.

    I think this is one of the most key components of actually trying to get the program on sound financial condition that we could ever do, because about 30 percent of our premiums are still discounted. Fifteen percent of those discounted premiums are on secondary homes. So a lot of this needs to be looked at and a lot of this needs to be basically restructured. If we target the worst repetitive loss areas, then you are talking about $200 million a year annually, which would make a huge difference in the insurance premiums nationwide, because the more that we can target and cut the losses I think the better shape we would be in to be sound financially and then able to lower premiums nationwide on other policies, which I think is the target that we should shoot for.

    Chairman LAZIO. Thank you, Director.
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    I yield to the gentleman from Massachusetts.

    Mr. FRANK. Mr. Chairman, I do apologize for being late and for leaving early, but this is the time of year when a number of things are happening at once, or perhaps a number of things are not happening at once, but when things don't happen, they take up more time than when they do happen, and you have to be there. So I am glad you are having this hearing and it does look like it will be very useful in terms of what it will produce, but I will not be able to contribute much, I am afraid, so I will just pass to Mrs. Jones.

    Chairman LAZIO. The gentlewoman from Ohio.

    Mrs. JONES. Thank you. I like this subcommittee. Even as a freshman I get to go early, so I have to say that.

    Thank you, first of all, for coming to testify this morning. Two kind of long questions. Is it possible to completely avoid flood-prone areas, considering the fact that floods can be considered as acts of God, without regard to any particular area or region of the country?

    Mr. WITT. I think it is very possible. I think it is important to look back at what the flood insurance program has done, the 19,000 communities that participate in this program. These communities that have been participating in this program actually have put in place better building codes and standards which they have to establish and enforce to build better and safer communities. And I have actually witnessed these communities that were hit by hurricanes and storm surges and floods that actually had very little damage, if any, in comparison to the property that was built before they had joined the program and see that property destroyed.
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    So it does work. Good, sound building and building codes and standards really, truly work.

    Tillamook County, Oregon, a small community, in 1996 was totally flooded. There is a Project Impact program and prevention program there now elevating 60 homes to do the prevention. They will never flood again. So you can do this. They have also actually taken their land planning and development and overlaying the flood maps to know where not to build. So you can do this. You can build safe communities.

    Mrs. JONES. The communities, and I am not able to identify them and I am not asking you to put their names out to the world to be identified, but what impetus are we putting upon those that have not taken the steps such as those you have discussed to get involved in this process?

    Mr. WITT. I think the 1994 Flood Insurance Reform Act actually helped us some in that, because they have a clause in that Act that says that if you are flooded once, you can get one free bite. If you are flooded the second time, you better have flood insurance, because you will not be eligible for grants to help rebuild.

    Mrs. JONES. And finally, doing a little historical question, back to the 1930's with the Tennessee Valley Authority, what lessons are learned from that situation and what can we do today to replicate some of the things that were done in that particular area?

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    Mr. WITT. I am not familiar with what they did in 1930 on that.

    Mrs. JONES. OK. Well, then I am going to leave that to have your staff get you up on that. But in essence, the Tennessee Valley Authority put in place the ability for them to deal with flooding in that area so that subsequently they wouldn't be put in this situation. But I won't pursue that line of questioning, and I guess——

    Mr. WITT. That was your flood control project?

    Mrs. JONES. Yes.

    Mr. WITT. Yes. The Corps of Engineers and Soil Conservation Service had really done a good job in flood control projects. I was actually the recipient of some of these projects as a local official for ten years. They actually put in some flood control projects in my county that literally stopped the flooding on some of my county roads at that time, so they do work. But I think together, in a combination with the prevention and flood control projects working together, it can really help make a difference.

    Mrs. JONES. I yield the balance of my time, Mr. Chairman.

    Chairman LAZIO. I thank the gentlewoman.

    The gentleman from Nebraska.

    Mr. BEREUTER. Thank you, Mr. Chairman.
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    Mr. Witt, I want to thank you again for your assistance, and even before I had that assistance I would have said what I am going to say now, that I think that you are the best FEMA Director in anybody's memory and that you have had a very positive effect upon the agency, enabling it to be more responsive, and you have handled things so expeditiously compared to previous years.

    I will ask two questions briefly so you can have maximum time to respond. In our Two Floods bill, H.R. 2728, it gives FEMA, in conjunction with the States and localities, the ability to choose the most appropriate mitigation approach. I want to ask you generally how you would anticipate that decisionmaking process would take place.

    Second, I know you feel fairly strongly, as I recall, about federally-owned property, where the leased structure is then subject to flooding. H.R. 2728 does address the subject of leased structures on federally-owned property. What are your thoughts about that subject, if you have time?

    Mr. WITT. I think it is very important that federally-owned property or buildings at least be considered under the bill. Because, to give you an example, in North Carolina, just recently, in Greenville, North Carolina, we had Federal housing flooded. Secretary Cuomo and I discussed this and talked about it. We need to make a decision to correct that on the Federal side as well, on Federal buildings. But we also need to be very careful in property we buy out under our buyout relocation program, that we work with the States and local governments under the mitigation program, to ensure that non-Federal property reverts back to State and local governments, or to city and county government, whichever city or county it is in. Also it has deed restrictions on it, where they cannot build on it again.
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    Mr. BEREUTER. I think you remember Section 8 in our bill addresses that.

    Mr. WITT. Yes, yes. That is important.

    Mr. BEREUTER. How about the negotiation process. How do you anticipate that would take place on mitigation activities?

    Mr. WITT. What we have done in the last six years working with the State floodplain managers, working with the emergency management in each State, they have now developed a Statewide 409 mitigation plan for each State. A lot of the local communities have developed a mitigation plan as well. Most of the States have a very good plan in place that can truly act on a buyout very quickly with the local community. It is a partnership between the Federal, State and local government, and State floodplain managers and we all work together on this.

    Mr. BEREUTER. Is that called Project Impact on your lapel there?

    Mr. WITT. That is part of Project Impact, yes, sir.

    Mr. BEREUTER. Thank you, Mr. Chairman.

    Chairman LAZIO. Could I just make a unanimous consent to allow the gentleman sitting on this panel to ask questions. Without objection, the gentleman is recognized.
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    Mr. BENTSEN. I thank the Chairman. I promise, no more football references to my colleagues from Nebraska. But I do want to introduce my fellow Texan from the great football State of Texas, Jo Ann Howard, who is head of the Flood Insurance Program.

    I have two questions. One is, FEMA is currently conducting, at least in my area and I think nationally, a floodplain map survey. I don't know if that is the appropriate term that you are looking to see if the floodplain has moved, which in my area I think is the result of upstream development or in general. Is that report finalized, and if it is, do you know how many homes, if there has been a net gain or loss of homes that have moved into the floodplain that would thus be affected—either would have to drop flood insurance or acquire it?

    Mr. WITT. It is not finalized.

    Mr. ARMSTRONG. No. But we are doing a restudy to see where the floodplain currently is based upon development, as you said, topographical changes because of weather patterns and we hope that that will be used as a tool for future development and planning, but it is still under review.

    Mr. WITT. Let me just say, and it is very important, what you brought up about the floodplains and the mapping. This agency is ten years behind on flood mapping and remapping. We still have 1,500 to 2,000 communities that have never been mapped, that need to be mapped.

    I asked Mike and his staff to do a cost analysis of what it would take to update the flood maps across the country: it is about $750 million. That is how far behind this agency is. And those maps are so important for communities to know where and how to develop. If we took just the flood from Hurricane Floyd from the Carolinas all the way up to Maine, if we looked at remapping those areas, which we should do, it would cost about $38 million to do it now before these communities rebuild, which is important.
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    Mr. BENTSEN. It is an important issue also, because in my area we get hurricanes occasionally, but we also get just rain, tropical storms and rainstorms that are not a 100-year event, they are a 1-year event or 2-year event, but there are people that get flooded out anyway.

    The other question I have goes to the buyouts. Could you provide the number of buyouts that are refused, say over the last ten years as a percentage of the top 10,000 repetitive loss properties? I guess what I am trying to find out is, how many are actually being refused versus how many just are not getting the offer, because the money is not there to do it?

    Mr. WITT. We can provide you with those figures.

    I will give you an example: In Grand Forks, North Dakota, about 800-and-some pieces of property were bought out after that flood two years ago. There was one piece of property that refused to buy out, out of 800-and-some. I want you to look at this picture. See that picture? That was in Grand Forks, North Dakota, 250 homes in that one spot, and the picture behind it is after the buyout, and it is open, green space that they are going to be utilizing for a recreational area for their community now, and it is environmentally good. That doesn't fit in every community.

    I know I am going to have to leave in just a little bit, but I want to say this. In Louisiana, and Congressman Baker and other Members from Louisiana and I have talked about this, there are a lot of areas you could help in a buyout just like in Houston, there are a lot of areas that would be more appropriate for elevation. There are a lot of areas that we might be able to do more in a mitigation project or drainage project that would be more cost-effective to do than it would to buy out or elevate. So we need to have a combination of things to make this work.
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    Mr. BENTSEN. Thank you, Mr. Chairman.

    Chairman LAZIO. The gentleman from Louisiana. I am going to just ask, for the purposes of trying to keep to a bare minimum in terms of time consumption, if we could keep to one question, if that would be possible.

    The gentleman from Louisiana.

    Mr. BAKER. It could be a pretty long one then, Mr. Chairman.

    I feel sort of like the unintended star of the hearing now, and I am going to be real brief, or go quickly, Mr. Witt. Please don't take this in any way to be more argumentative than it may sound, but given the raw data I have seen and the concerns expressed about Louisiana and the elements that go into the legislative approaches now being suggested, they do create great concerns for those of us with individuals who have been placed in adverse circumstances not due to their own making.

    First, with the ability to avoid natural hazard of flooding through voluntary and creative ideas, I take great dispute with those conclusions, because who could have predicted the hurricane path of Floyd or any other storm? For instance, in the illustration just given, how many times did those homes actually flood to the extent to which ultimately led to the buyout?

    Floods are dynamic events. Whether you have upstream development that enhances downstream flow, or stream, the adjacent municipality has failed to keep the maintenance at appropriate levels, what the tide levels are, the wind direction, all of those things make this a very difficult thing to say this approach works in every natural hazard and, as a result, these folks ought to be precluded from additional assistance.
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    Further, when you begin to look at the dollar value of the repetitive loss properties, generally you find they are well under $200,000. You don't find many middle and upper class subdivisions subject to repetitive flooding and, as a consequence, you find individuals with a $40,000 mortgage with a property that has flooded ten times, which they have a market value of $20,000. I hope we are not saying to these individuals, we will buy you out at $20,000 and leave you with an inability to acquire a new home and $20,000 worth of debt. I know that is not your intent, but I wish to make the point for those on the subcommittee who perhaps have not faced these particular circumstances.

    When you go beyond the question of the buyouts and the cap now available to you to assist in flood payment claims of $1 billion, I find it of interest that early in the year, we were approaching that $1 billion cap, and now some six months later, we are well under $450 million, which means that floods come in an unexpected repetitive nature, and yet the premiums come on a regular, monthly basis, and ultimately the premiums paid do offset the abhorrent losses which occur over time. Sure, we need to look at the premium structure, but I suggest the adjustment should not come solely on the backs of those with repetitive losses, but across the field. And on that point, I think you should look at State-by-State as to the number of people in floodplains who are actually enrolled and paying premium.

    Much to the defense of Louisiana, you will find a higher percentage of Louisianians identified as flood hazard and paying flood premiums. That to me is a far better system than those in a State who have not even been mapped, not making any contribution, and then get the assistance when the inevitable does occur.

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    Finally, there is no mechanism by which an individual's circumstance under any proposal I have yet seen would allow you the authority I think you are entitled to exercise to look at the individual circumstance: Did this person, in fact, buy a well-identified, well-known repetitive flooding property at bargain basement prices to farm the flood insurance program? Much like, on the agriculture side where somebody buys crop insurance, makes three passes with a bunch of discs and says ''Whoops, my crop failed.'' They are farming the crop insurance program. Some people farm the flood insurance program. Both are wrong. I think those people should be barred and prohibited from further claims. Nobody argues that point.

    I think the observation I am trying to make is that good people in good faith can find themselves in circumstances from which they cannot be extricated. The two proposals we are now considering don't address those issues. I would much prefer to have everybody mapped, everybody paying premium, and have the agency determine whether you are entitled to additional repetitive assistance or not, based on your circumstance and your knowledge of the environment in which you purchased.

    I wish we had more time, but I have not asked a question, I just wanted to help the Chairman out by not asking a question. Thank you, Mr. Witt.

    Chairman LAZIO. I want to thank the gentleman for his courtesy.

    The gentlewoman from New York.

    Mrs. KELLY. Thank you, Mr. Chairman.

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    I am going to make this really fast. I want to move away from the mitigation, and Mr. Witt, I want to thank you for your prompt attention to my area of New York. You have been wonderful, you and your agency have been wonderful for us to work with.

    However, as I have gone around in New York listening to people, I have heard again and again people saying, ''I didn't know flood insurance was available. I didn't know where to go get it.'' I want to know what FEMA is doing to raise the public awareness. I want to know if you have found it difficult, and I also want to know if there is something that we in Congress can do to help you raise public awareness about where to go get insurance for floods?

    Mr. WITT. That is a very good point. A lot of homeowners think that their homeowners' insurance covers flood insurance as well, which it doesn't. We have a lot of write-your-own companies across the country that sell flood insurance for us. We started in 1994 on a major marketing campaign called Cover America to make sure that people understood, and you have probably seen some of the commercials. We worked with the write-your-own companies where they could use this same advertisement in marketing in their areas. We were able to increase policies by I think it was 27 percent since 1994.

    But it is very difficult in trying to do this in a sense when a lot of people don't watch television, a lot of people don't read the newspaper or a particular magazine, so Jo Ann and her staff have been holding regional forums all over the country to help agents put out marketing campaigns so that people would know. It is incredible, as much as we have marketed and pushed that still, people don't understand that their homeowners' insurance doesn't cover that. But we are making an effort, a huge effort. Public service announcements by Members of Congress in their communities would be a great help too.
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    And let me add to what you were talking about earlier real quick. The mortgage lenders in the country that cover mortgages for property and loans, it is very—and a lot of them, and Congress, very wisely, passed a law to make sure that the lenders did comply with the flood insurance program, if they loaned money on a house or property in a floodplain, they were required to have flood insurance as part of that mortgage. We still find that some lenders do not require that, because they are competitive with other lenders somewhere. So that is a very important thing to remember.

    Chairman LAZIO. I thank the gentlewoman.

    The last question from my good friend, Mr. Jones.

    Mr. JONES. Thank you, Mr. Chairman.

    Mr. Witt, I want to say on behalf of the people of eastern North Carolina, in Congresswoman Eva Clayton's district, my district and also Mike McIntire, we want to thank you for the wonderful work that FEMA is doing to try to help people who have been totally devastated by the floods from Hurricane Floyd.

    What we found out, as you are very much aware, you and your staff, that so many of our homeowners were in the 500-year floodplain. They did not have insurance. I guess my question, because of time which I will make it very short, what are your feelings and recommendations as it relates to those people that live outside of a floodplain and also if you would just touch on that, that would help me?
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    Mr. WITT. I think it goes back to the awareness that Congresswoman Kelly was talking about. What I found in North Carolina, the areas that you are referring to, outside the 100-year floodplain, people didn't even know they could buy insurance outside the 100-year floodplain. Actually, the flood insurance outside the 100-year floodplain is very reasonable and very cheap, so that they could afford and probably most of them would probably—a lot of them I would say probably would have bought it.

    Then we go back to the other situation in North Carolina. There are a lot of very small communities, and there were 117 communities that were flooded that did not participate in the flood insurance program, and it was simply because they just didn't understand the program. I fault ourselves, but we have to do a better job as well as State and local emergency management and State floodplain people. But this is important. These people now have lost everything they have worked all their lives for.

    What was interesting in North Carolina and several other floods I have seen is the fact that we have six sewer treatment plants that were flooded, and they were built back years ago by Federal dollars and they were built in the 100-year floodplain. Why? We had something like 20-something water treatment plants flooded, and they were built in the 100-year floodplain. Not all of them, but some of them. These things need to be addressed. It is very expensive to rebuild these, but it is even more expensive and more taxing on that local government and these individuals. My heart goes out to these people, and I think people should have a choice and an opportunity to get out of a bad situation and not continue to build or rebuild in that situation.

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    Mr. JONES. Thank you.

    Chairman LAZIO. I thank the gentleman.

    I want to thank you once again. You obviously have heard from Members of this subcommittee in a bipartisan way regarding the esteem that you are held in. I have been to Grand Forks, North Dakota during the floods. I have seen houses in my own district wash into the ocean. So while we are looking at ways in which we can be fair and balanced to the taxpayer and to sustain this program, I would not want to undermine the necessity of having the program, because it does truly bring peace of mind to people who face these catastrophes, it helps people get their lives back together when they have lost virtually everything of material value.

    So I want to thank you for your great public service and for your testimony here today.

    Mr. WITT. Thank you, Mr. Chairman. I thank the subcommittee.

    If you have any further questions, Jo Ann and Mike will be happy to answer them.

    Chairman LAZIO. There may be other questions that the subcommittee would like to pose. We will do that in writing, if that is possible.

    I will ask the next panel please to come to the witness table.

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    I ask unanimous consent to include two letters, one from the National Association of Realtors and one from the National Emergency Management Association, with respect to the topic that the subcommittee is hearing testimony on, and without objection, those will be included in the record.

    We thank the next panel of witnesses for your written testimony. Your written testimony will be included in the record.

    I will introduce the three people who will be testifying. First is Stanley Czerwinski, who is the Associate Director of Housing and Community Development Issues, Resources, Community and Economic Development Division, from the United States General Accounting Office, GAO, and he is being assisted by Robert Procaccini, who has been before this subcommittee before and has been valuable.

    Also, Rebecca Quinn, Legislative Officer of the Association of State and Floodplain Managers; and David Conrad, Water Resources Specialist, Office of Federal and International Affairs of the National Wildlife Federation. He has been involved as well in analyzing repetitive flooding through the Higher Ground study.

    So thank you all for being here. Let me begin with Mr. Czerwinski. You are recognized.

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    Mr. CZERWINSKI. Thank you, Mr. Chairman and Members of the subcommittee. We appreciate the opportunity to testify today on the flood insurance program.

    You just heard Congressmen Bentsen, Bereuter and Blumenauer and Director Witt talk about their proposals for curbing repetitive losses. We agree with the need to target repetitive losses and we agree with the principle behind those proposals. However, I would like to take a step back and take a look at the program as a whole. To do that, I would like to offer you some perspective on three issues: First, the soundness of the fund; second, repetitive losses and the proposals we have heard about today, and third is some implementation issues raised by those proposals.

    As the chart on your left shows, the Federal Insurance Program is not actuarially sound. With losses up to $600 million in any given year, this is not the way you would run a public corporation. However, in fairness to the insurance program, we have to say that it was never set up to be actuarially sound. This is primarily because when the program was established, a large number of older, substandard properties were grandfathered into the program.

    Currently, these properties comprise about 30 percent of the portfolio, and in costs to the fund they represent a drain of $500 million a year. These subsidized properties, and you have heard some of the prior witnesses refer to them, do pay a higher premium than the non-subsidized properties. Currently, the premium for the subsidized properties is about $580 a year, on the average, whereas the unsubsidized rate is about $290 a year on the average. However, FEMA estimates that to bring the subsidized properties up to the point where they would pay their own freight would cost about $1,300 a year in premium. This raises questions of, can these property owners pay? Will they pay? What will we do if they don't? And these questions apply to repetitive losses as well.
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    The repetitive loss properties comprise about 1 percent of the portfolio of the insurance fund. Yet, they also make up about 36 percent of the claims. You can see why we agree with the proposals to target these properties, which cost about $200 million a year in claims.

    The proposals you heard today have essentially a twofold approach, I call it a carrot and a stick. They vary somewhat in the details, but the overall approach is the same. The carrot is mitigate. Mitigate can very simply be stated as, remove the properties from harm's way, either get them out of the floodplain or elevate them above the flood level so that they are not a problem. The stick is, if a property is not mitigated, then there are two approaches that can be followed. One is raise the premiums; the second is if the people can't or won't pay the premiums, they are denied Federal assistance.

    The point that I want to stress is that none of these decisions are made in isolation. A change that is made to the insurance program will have a ripple effect on what we pay for disaster assistance.

    That gets me to the third point that I would like to discuss, and that is some of the implementation issues of the proposals you have heard today. Mitigation is neither simple nor cheap nor quick. At the rate of funding that we heard talked about today, it would probably take a minimum of 25 years to mitigate all of the repetitive loss properties. What that is going to do is place very high emphasis on prioritizing: the worst properties should be taken out of harm's way first.

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    We just testified back in August before the House Transportation and Infrastructure Committee and talked about this very issue. We reviewed FEMA's hazard mitigation grant program, which is FEMA's flagship mitigation program. We found the Achilles' heel of that program is FEMA's ability to prioritize which properties should be mitigated first. So that is an issue. That places a question about the carrot. Let's go to the stick. Well, the stick is a matter of who can pay a higher premium and do we as a Government have the will to enforce no payments of any kind of disaster assistance to those who will not pay this higher premium?

    As Mr. Witt mentioned, the 1994 Act does contain a provision that those who have not paid their insurance and have had one disaster would be denied further assistance—''one strike and you are out.'' I am not a weather person, but I do believe there have been a number of floods since 1994, yet I don't really know of any examples of places where we have had the will, and I am not saying that we should, to deny people benefits when they are in these kinds of straits. What I wanted to do is to raise some issues that we have to face in discussing these proposals.

    The bottom line is that we think that the proposals to target repetitive losses are on track; they are a step in the right direction, but they are not a panacea. There will be some issues in how we implement them, and even if we implement them, we still have some underlying structural issues going back to the inclusion of subsidized properties at the start of the program that we will have to deal with before we can make the flood insurance program actuarially sound.

    That concludes my statement, Mr. Chairman. I will be glad to respond to any questions you have.
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    Chairman LAZIO. Thank you very much. I will now turn to Rebecca Quinn.


    Ms. QUINN. Good morning.

    Focusing on repetitive losses is a good thing. My mother used to say, ''good things come to those who wait.'' Of course, I think she told me that when she was trying to make me be patient.

    The Association of State Floodplain Managers has been patient. This is an issue that we have been working on, anxious to continue working on, for quite some time, at least since this subcommittee in its form over ten years ago first considered reforms in 1988. Your work today, based on these two bills, will give FEMA and States and communities, the added tools we need to complete a repetitive loss strategy.

    My name is Rebecca Quinn and I am the Legislative Officer for the Association of State Floodplain Managers and the former State Coordinator for Maryland. Our individual members and State chapters represent over 3,500 people who work every day on floodplain permitting, mitigation planning, mitigation projects, and recovery. I will only summarize our written statements.
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    You have heard enough about how we define the problem to understand that it has many facets. A good strategy, what we already have and what these bills will bring to us, will have beneficial effects on the financial stability of the NFIP. We believe it will have another significant effect, which Mr. Witt did allude to, to not only the people who are currently in the flood insurance program, but the millions who are not yet in. We believe that these tools will reduce the pressure to raise the rates. If we can go one year without a 10 percent increase, that saves, on average, somewhere between $30 or $40 per policy, and multiply that by 4 million, that is a lot of money that stays in people's pockets.

    Give it a couple of years, and people begin to see that the cost of a policy is more in line with their perceived risk. What does that do? People who don't have to buy insurance will buy insurance. We all read and hear about the big floods, the Hurricane Floyds and Frans, El Nino, Red River and the Midwest floods. But many of the repetitive loss properties are triggered by little floods. They don't make the news, they don't get Presidential declarations, they don't qualify for disaster assistance or FEMA's post-flood mitigation program. That is one more reason why we support a proactive strategy. When a home has been flooded two or three times, we can learn from that history. We don't have to wait for the next flood. Giving FEMA the authority to move based on history, to take action, is something we fully endorse.

    Something else we know is that many of these homes are occupied by low-income families in certain parts of the country. You and I may be in a position to make a financial decision, a logical decision as to whether we do or don't invest in our house or insurance or some other things. But many of these homeowners aren't. They may see it as a good idea, but they simply can't afford the cost of insurance. So we want you to keep in mind, as I am sure some of your Members are, the impact on low-income homeowners.
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    We do endorse the consequences contemplated in H.R. 2728, if someone refuses an offer, provided that it is for a reasonable and feasible measure. FEMA does have procedures to look at cost-effectiveness and feasibility, and we are confident that in partnership with States and locals, those will be good decisions.

    But, because the consequences are significant, we urge that you do three things: The first is to consider modifying the current program to allow some other applicants or subgrantees to be eligible, including housing agencies and non-profits that deal with housing issues. We think that is a good way to help with the low-income sector.

    Second, have FEMA demonstrate to you how it will provide mitigation offers to encourage people to participate. And third, we agree with Mr. Baker and urge that you understand that there are people for whom there won't be a reasonable and feasible and cost-effective mitigation measure. We believe those are the people the original framers intended to be subsidized. If there is no good solution, then their best protection is the financial protection of flood insurance, rather than depend on disaster assistance.

    The approach set forth in H.R. 2728 will reduce Federal outlays and I think GAO mentioned that in terms of reducing disaster assistance. Something else you might want to keep in mind is when someone is flooded and they don't have insurance, they may qualify for the casualty loss deduction on their taxes. That is an uncounted loss to the Federal Government, another reason to get insurance.

    The single most effective way to avoid these Federal costs is to buy insurance. But for those reasons, all of those savings beyond just the National Flood Insurance Program, we endorse not only adding additional NFIP funds, but also general funds to address the problem. We do, however, have a suggestion or two about funding. One is the current program, which is $20 million a year. We would like to see that continued, virtually unchanged. All States get some funding; all States have an opportunity to tap into it. We would also like to see that program continued when the focus on repetitive loss is over.
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    The other is, and this strikes at a question Mrs. Jones asked, the current program requires a community to have a plan. The plan is a logical process, looking at the problems, looking at solutions and making decisions. If you up the project money to over $100 million, we need an increase in the planning money so that the planning can keep up and prepare communities to take advantage of the new funding.

    There was a comment earlier about the insurance on Federal lands. Do keep in mind that local land use rules do not apply on Federal lands. We don't know if these people who build on Federal leased lands are building recognizing the hazard or not. If they are not, then the quid pro quo of the NFIP is out of whack. We urge that, if nothing else, you ask these Federal agencies that lease lands to report on whether they do or do not include flood hazards in their lease decisions.

    At the beginning I mentioned the value of having a complete strategy. One tool that was put in place by the 1994 Reform Act is a mitigation component of the standard flood insurance policy. It is known as increased cost of compliance. While it has had a slow start and a somewhat difficult start, and certainly there are shared problems at the local level as well as with FEMA, many communities are having difficulty dealing with substantial damage decisions. We are very encouraged that FEMA is studying this, and we look forward to working with them as they craft solutions to it.

    We had some other comments on the other issues that you mentioned. Those are in our written testimony. State and local floodplain managers across the country are real excited about this and we are certainly going to do a lot to get ready to take advantage when and if this program moves forward. Thank you.
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    Chairman LAZIO. Thank you very much, Ms. Quinn.

    We will now hear the testimony of David Conrad, who is a Water Resource Specialist at the National Federal Wildlife Federation.


    Mr. CONRAD. Thank you, Mr. Chairman. Good morning, Mr. Chairman and Members of the subcommittee. We especially want to thank Representatives Bereuter, Blumenauer and Bentsen for their work in bringing the Nation's attention to repetitive loss problems and for introducing legislation to address them. We also want to thank FEMA Director Witt and his staff for the high degree of attention that they have focused on these issues.

    We know that in this hearing, the subcommittee will be focusing on a range of concerns associated with NFIP, including its financial condition. But I hope the Federation's testimony will also bring to light the important environmental benefits that would likely accompany enactment of H.R. 2728 or similar legislation. There have been references to the report that the National Wildlife Federation produced last year, about a year ago, called Higher Ground. I was the project manager and co-author of that report, and we have made the report available to the staff for the subcommittee's records.

    I want to just mention a few of the key findings of that report that we thought were important. First of all, the background here is that national flood damages have been rising alarmingly through this century. We looked at figures provided by the National Weather Service from 1903 to present, and with 25-year national averages. They have gone from around $2 billion to $4.2 billion in adjusted dollars, and that is despite $100 billion-plus having been spent on flood control through that period, and that is a disturbing trend. Just in the last five years, that national average was $8 billion of damage. The NFIP is not actuarially sound. That is, I know, in part by design, but I think a lot of people would like to see the program be made more actuarially sound than it actually is at this time. I think this legislation would make a great contribution to that.
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    In many instances, I think reliance on structural flood control projects have led to a false sense of security, which, in turn, has increased risky development in floodplains. A weakness of the National Flood Insurance Program and Federal disaster programs is that we believe they do not sufficiently discourage risky floodplain development and particularly redevelopment. Some of the key findings from our report regarding repetitive losses, a number of them have been mentioned.

    One is that repetitive losses do occur in all 50 States. There are more than 4,500 communities that have at least one repetitive loss property. Repetitive loss properties have received a disproportionate share, obviously, of the NFIP payments, with approximately 2 percent of properties generating 40 percent of NFIP losses. We found more than 5,000 properties where the cumulative flood insurance payments exceeded the highest reported value of the property during the 18-year period of our data from FEMA that we received to do this report.

    We also found that there were 11,000 properties that appeared to have sustained substantial damage, meaning they had lost more than 50 percent of their value in a single event some time during those 18 years, and yet, there was little evidence that much mitigation, which is required under the flood insurance program, had taken place for those properties, because subsequent damages continued at basically the same or even greater rate than prior to the substantial damage. Also, we found about 20 percent of properties that were repetitive loss properties were classified as outside the 100-year floodplain, which is very disturbing, as the implication is that those properties were supposed to have floods less often than 1 percent a year over 100 years, and yet many of them had three or more losses. Many of them were indeed FIRM properties.
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    FEMA has provided some updated numbers which I won't actually go through, and the General Accounting Office has provided a recent report that I talk about in my written statement that I think helps identify some of the key subsidies that are involved with the flood insurance program, and it was our conclusion that subsidies were tending to discourage—I mean they work as a discouragement to people to find mitigation measures and move from harm's way.

    Director Witt mentioned that FEMA, through the hazard mitigation program, has already, largely since 1993, purchased and removed more than 22,000 properties from floodplains, largely after disasters. We go through a number of examples in our written testimony on the cost-effectiveness of a number of those purchases, and also the fact that purchased lands are now being used for a number of very valuable public purposes, including open space, park land, agriculture, sports fields, cultural and educational areas, natural stream and floodplain habitat, bike paths, and alternative transportation.

    There is a lot of very positive things that can come from the buyout programs. But, it is clear that what is especially needed is pre-disaster mitigation, and it was our view in doing our study that very possibly the repetitive losses would point to the first place where we should be doing hazard mitigation. I think that has been borne out.

    By providing real mitigation options to help reduce risk and relocate high-risk flood-prone structures out of harm's way, we believe H.R. 2728 will help FEMA and NFIP participating communities address many of the problems identified with repetitive loss properties. We particularly support H.R. 2728 because it is, one: clear that substantially increased funding levels for repetitive loss, predisaster mitigation are needed to complement post-disaster mitigation efforts. Two, the bill would fully engage the States and communities in developing and implementing hazard mitigation plans to address repetitive loss properties. And three, it is important and necessary for the financial health and future stability of the national flood insurance fund that owners of repetitive loss properties should pay rates that reflect the actuarial risk associated with their properties, particularly if a reasonable mitigation offer is made and refused. This represents both a reasonable and balanced approach to helping all concerned break the costly cycle of repeated flood and also presents important opportunities to protect and enhance the environment.
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    We have just a couple of suggestions as to possible improvements to the legislation. One, we would urge that the director and communities be given sufficient flexibility to address not only just NFIP repetitive loss structures, but also other flood-prone structures or properties in the vicinity which, for community land management objectives, should also be relocated or addressed as part of a comprehensive community hazard mitigation plan.

    Chairman LAZIO. I am going to ask you to summarize, please.

    Mr. CONRAD. OK, all right.

    One of the issues I wanted to mention was the maps. The National Wildlife Federation strongly supports the efforts of FEMA's staff and management to modernize its flood insurance maps. Because NFIP maps are fundamental to community planning, we believe that a general real estate transaction fee would be an appropriate means of funding this important activity, but we also believe that these maps are a much broader array of community and land management planning purposes than as represented by simply flood insurance rating needs, and that it would be appropriate to dedicate some level of general funds to support a national map modernization and updating effort.

    Once again, Mr. Chairman, I wish to thank the subcommittee for giving us the opportunity to testify, and I would be pleased to respond to any questions the Members may have. Thank you.

    Chairman LAZIO. Thank you very much.
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    Let me ask you the first question.

    Mr. CONRAD. All right.

    Chairman LAZIO. Just touching on your point about participating communities and their failure to enforce the substantial damage rules and whether that accelerates the exposure that the program has, number one. Number two, why does that happen? Is that a lack of proper oversight by FEMA? Is there fraud in the system?

    Mr. CONRAD. We stared at these numbers for weeks trying to understand, and talked to an awful lot of people trying to understand this, and in 1989, FEMA had an internal study of its own on this subject where it noticed that there were repetitive substantial damage situations which we also noticed in the data.

    I think, and I will mention one other thing, and that is that the FEMA Inspector General has just put out a new report looking at some of those same issues. Their conclusion, and I think it is correct, is that in the past, communities were either unaware of the substantial damage rules and the requirements—these have to be enforced by the local community, not by FEMA. And so after a disaster, often there is such a chaotic situation that if people didn't know about this in advance, they might not be responsive to that rule. I think there hasn't been as much oversight as there probably should have been on FEMA's part in this regard.

    There is a lot of exposure that comes as a result of failure to enforce the substantial damage rules, and one of the main ones is if the building is rebuilt and we saw that that was happening in the data that we looked at, thousands of buildings were obviously rebuilt, exactly where they were, the owner is supposed to be—after substantial damage, the owner is supposed to pay actuarial rates for the insurance and they don't do that.
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    But I think the other major reason is that community leaders didn't see very many options. If they declared substantial damage, many times the people who had suffered that damage weren't in a position to make the repairs and bring the building up to modern code, and so I think this kind of got lost in the shuffle.

    I think with H.R. 2728 or legislation like this, where we would be making money available to do mitigation, this should go an awfully long way in helping solve that, because people will become more aware of the options that they can have to do mitigation.

    Ms. QUINN. If I could just add one thing, that is the existing tool that I mentioned, the increased cost of compliance, where if you are declared substantially damaged, then the policy will provide up to $15,000 to mitigate. While it may not be enough to pay 100 percent of the cost of mitigation; it is a good chunk of it. We understand FEMA is looking at possibly increasing the amount of benefit which is part of every policy right now. Many communities don't understand that if they make that 50 percent determination, there is some money.

    It is a hard thing. You are facing somebody who has already been damaged and is it 48 percent, or is it 52 percent damage? There is a big difference in the cost to repair. But there is a lot of progress to be made there, and FEMA is looking at it.

    Chairman LAZIO. Let me follow up on that also, Mr. Czerwinski. You have testified earlier before the Transportation and Oversight Subcommittee about the inconsistent application of cost-benefit analysis for mitigation. Could you touch on that, and also on what that might say in terms of potential startup problems that FEMA might have in implementing a broader and more comprehensive mitigation effort that would be reflected in either of the two bills that we are considering here?
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    Mr. CZERWINSKI. Sure. I would be glad to, Mr. Chairman.

    The issue with FEMA's prioritization through cost-benefit analysis is not a matter of having a system that has a problem or a procedure that has a problem. There are systems and procedures for cost-benefit analysis that are right on track. There is no question about that. It is more a matter of a large number of projects being exempted from going through that process, and FEMA not having adequate information on the number of projects being exempted or the full rationale and implications of exempting them.

    Chairman LAZIO. I think my time has run now.

    Mr. Vento.

    Mr. VENTO. Well, thanks, Mr. Chairman. I generally encourage and favor the approaches taken by Messrs. Bereuter and Blumenauer and Bentsen in terms of this repetitive loss. I think the principal question here, of course, is one of consumer behavior. The issue is, if you push this so far, we can do all of the classification, the director makes the determination there is a repetitive loss, you raise the premiums and they don't buy the insurance, along comes the event and because we can't practice tough love very effectively, we then provide the help.

    So I don't know if anyone at that table can answer that particular question, but you know, certainly we have seen it happen with regards to the various farm and crop insurance programs, and I think it is a risk here. After all, there was no program before. The converse of this is that from what I have read in some of the testimony that there is $160 million in premiums, that flood insurance has gone up 10 percent or something over the last few years, I think was the expression. I don't know if that meant three years or four years or what, but 10 percent a year, and we have got some rather unusual events that are going on with regards to El Nino, and there conversely is the savings that would accrue. So you would actually make it cheaper for some and obviously prohibitively expensive for others, which may result in some of this behavior.
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    So can any of you give me any guidance as to—I think we have made a lot of progress with the program, but these are pretty fundamental questions. We would all like to be able to proceed with something that doesn't pay for repetitive loss and moves people out of floodplains. Of course, there are all sorts of interest groups and arguments about ''Why can't I build on this barrier island?'' or ''why can't I build in this particular Mississippi valley?'' We have obviously moved a lot of that out. Of course East Grand Forks is not too close to home, Mr. Chairman, but close enough so that I know the agony that they have gone through.

    Can anyone help me?

    Ms. Quinn.

    Ms. QUINN. Yes. You had a lot in there. One is that we need to make sure that we, and here I use it collectively, it is not just FEMA, but their insurance agents, the State and local people, that we communicate clearly to people about consequences. Frankly, just because somebody nods their head doesn't mean they understand. Most people don't believe a flood is going to happen to them, often even when they just experienced one. So, saying ''If you don't buy flood insurance, we are going to deny disaster assistance''—people don't understand what that means. It is a problem we have struggled with for years and we are going to continue to struggle with it. But we need to keep at it.

    The current program does deny disaster assistance, if someone was required to get insurance, but they don't keep it. This bill would continue that provision.

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    I think the best we can do, and it may be a long-term solution, is to consider all of these mitigation measures as cost containment. Bring the cost of insurance down so it is more in line with people's perception of risk, and then they can afford it.

    Mr. VENTO. Anyone want to add to that? Do you agree with her?

    Mr. CZERWINSKI. Yes, Mr. Vento. I wish I had run my statement by you before I gave it, because the phrase ''tough love is hard to practice,'' perfectly summarizes a point I was trying to make. As a matter of fact, that is the message that we also delivered at a field hearing in your State back in August.

    I think the bottom line is that we want you to view the whole flood insurance disaster assistance as a closed system, and that some savings that you make in one place will be partially, at least, offset in another.

    However, I want to emphasize that we believe that repetitive losses is probably the place to start and the provisions that are in the bills and the Administration's proposals that were put forward today is probably the right way to go, it is just not going to get us all the way there.

    Mr. VENTO. Well, I think the other thing, Mr. Chairman, and the witnesses I think have done a good job and I commend them, but these are the sort of questions we don't know in terms of if we knew exactly how the markets or folks would behave in terms of this it would be helpful, but there are folks that have spent a lot more than we do in terms of trying to guide that particular type of behavior.
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    But the other issue of course is empowering people. For instance, FEMA has come up with grants and a variety of things, I know in the instance of Grand Forks and East Grand Forks they have actually built new homes in certain places in North Dakota away from these sites. Of course the fact that they couldn't sell them was a little bit of a problem. These are pretty nice homes, and at a bargain I might say, and I guess they are finally starting to sell some now. But the issue was that providing how much additional assistance in coordinating that so that empowers people so you avoid the problem.

    You say these homes have been there maybe 100 years, some of them in these jurisdictions and they are being moved, and of course part of this is because in the East Grand Forks and Grand Forks area, because of the lousy job we usually do with trying to deal with flood protection and so forth, that we have created some of the problems that have gone on.

    So I mean all of this makes a very mixed picture for those that have those 100-year-old homes that they have to move out of.

    But I think the issue is that these bills do provide some help to facilitate people. We don't have uniform relocation assistance coming out of this particular process, but that could be part and parcel of the policy itself in terms of paying for it as opposed to just the FEMA aspect. Whatever savings would come out of repetitive losses could be diverted into the assistance to actually reduce and provide mitigation by moving people out of harm's way.

    Mr. CONRAD. Congressman Vento, I think one other aspect of these bills or this approach is it would begin to send—information is very important here. What consumers do is based upon the information they have and their perceptions, at least, and if communities begin to invest in hazard, limitation hazard reduction, in Grand Forks and East Grand Forks, the communities are doing an extraordinary thing. They are creating a 2,200-acre park land between the levees that they are going to be setting back. That will be—for those communities, that will be all the reminder that will be necessary, that the river can come up. That will be part of the history, and my guess is that people will be much more cognizant of the risks of new building in the future.
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    So I think this harbingers a potential of a change of approach that many communities could take advantage of and could have long-term positive consequences in terms of risk management.

    Mr. VENTO. Well, Mr. Chairman, just briefly, I paid attention to the public lands question that you asked. I have a little interest in that, and we obviously lease some land for use and if there are dwellings that we are going to be insuring or not, there ought to be what we call some Federal consistency of policy.

    The other issue I would just say, Mr. Conrad, the water doesn't have to come up very high, as my Chairman knows, for it to go a long way across western Minnesota and northeastern North Dakota.

    Thank you, Mr. Chairman.

    Chairman LAZIO. Mr. Bereuter.

    Mr. BEREUTER. I have letters from the Coast Alliance and the Taxpayers for Common Sense, along with an editorial from the Houston Chronicle that I would ask unanimous consent to make a part of the record.

    Chairman LAZIO. Without objection, so ordered.

    Mr. BEREUTER. Thank you, Mr. Chairman.
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    I did hear the discussion, the dialogue prompted by the gentleman from Minnesota, his analogy to crop insurance is apt. Every time we have Federal disaster assistance from NFIP for storm damage for crops, we make it less likely that they will participate in the crop insurance program. However, I would like to say that, at least in the legislation that we have presented, we focus on repetitive loss structures first. Our legislation does not address whether or not the Government can practice tough love after a huge hurricane and deny Federal disaster assistance. In the meantime at least, under H.R. 2728, they would be paying actuarially sound rates, which would help the flood insurance program.

    I would like to note that in the GAO report, which I appreciate, it says that the pre-FIRM properties are, on average, paying about 38 percent of the true risk premium for those properties; 38 percent, that is what they are paying now. One thing I would like to know in the future, Mr. Czerwinski, is if we have any, or could collect any income data on the people collecting flood insurance claims on repetitive loss structures. I don't think that I have seen that this data is available. You heard Mr. Baker's comments earlier, and that may or may not be indicative of what exists around the country.

    Ms. Quinn, you made comments related to federally-leased property, which I would like to pursue just a second. I gave Mr. Witt an opportunity to pursue that, he didn't pick up the bait, but he and his staff first reminded me that we have a very large number of second homes that are built on Federal land, 99-year leases. The leases were very inexpensive, we will say that, and they are on the levee side, the river side of the levee, over the seawall in the case of the coastal areas, and our bill, at least, would require that these properties pay actuarially sound rates. But up and down the Mississippi River, for example, we have huge numbers apparently of these second homes that are on Federal property where the lease is almost nothing, and yet the claims to the flood insurance program are dramatic.
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    Would you like to comment any further on that subject?

    Ms. QUINN. Yes, I would. First, the problem goes far beyond just the water side of a protection measure. There are some homes along the Potomac River where there are no levees. There are some along rivers up and down Illinois. Illinois reports that the majority of its repetitive loss properties are on federally-leased lands.

    Mr. BEREUTER. You are talking about federally-leased lands?

    Ms. QUINN. Absolutely. Where there may not even be a levee. Your bill specifically is on the water side of a protection measure. We would encourage you to look at requiring actuarial insurance on all federally-leased lands.

    Second, they are not all secondary homes. Many of them have become permanent residences, and the leasing agency therefore is a little more reluctant to enforce any provisions of the lease, if it has some. Third, is it is unclear to us that the leasing agency has any standards for construction and local land use regulations don't apply, which is why we encourage——

    Mr. BEREUTER. Say that again. We want everybody to hear that. Local land use restrictions do not apply to Federal property.

    Ms. QUINN. Correct. The National Flood Insurance Program is a quid pro quo. A community regulates and recognizes flood hazards in its development decisions, and in return its citizens get insurance. That quid pro quo is probably out of whack on most federally-leased lands.
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    There are communities that are willing to help fund mitigation measures on Federal lands. One that I am aware of, the Federal agency says they won't change their lease; they won't restrict rebuilding on the property. So it is difficult for a community—one might even say ''How can a community spend public funds on Federal lands?'' Well, they are trying to protect the citizens who do pay some taxes, who do get public services. But, it is a serious question and we think you should request all of these leasing agencies to report on how they handle this particular issue.

    Mr. BEREUTER. Thank you very much. That is an important issue.

    So you are proposing that we actually strengthen the Subsection in 5 that we are changing to make it apply; regardless of whether there is a levee or seawall, as long as it is federally-leased property and they are a repetitive loss structure, they would have to pay actuarially sound rates?

    Ms. QUINN. We would actually say all, if they are a repetitive loss, if they have a flood insurance policy, they should be—they already have a subsidy. So, yes sir, we would support strengthening that.

    Mr. BEREUTER. Thanks to all of you for your testimony. Thank you, Mr. Chairman.

    Chairman LAZIO. I thank the gentleman.
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    The gentleman from Virginia, Mr. Goode.

    Mr. GOODE. Thank you, Mr. Chairman. I just have one question for Mr. Conrad or any others on the panel.

    Congressman Blumenauer, when he was here, testified of the example in Texas where one landowner had gotten back seven times, or approximately seven times the value of the real estate. How many instances nationwide would you say there are of persons getting back a minimum of three times plus, three, four, five, six, seven or eight, the value of the property?

    Mr. CONRAD. Congressman, I don't know that number right off. We published in our report a list of the top 200 properties where, and these were single family residences, where the cumulative payments exceeded the buildings' value. The top one was seven times. But there would probably be dozens and dozens of properties that exceed the factor of three and thousands of properties that are between one and two or 2.5. So there were 5,629 properties in our study, and that was four years ago, that met that threshold, and FEMA has updated these numbers since, and there are probably more like 8,000 now.

    Mr. GOODE. 8,000 that exceeded double or——

    Mr. CONRAD. No, no, exceeded their building value.

    Mr. GOODE. Thank you, Mr. Chairman.

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    Chairman LAZIO. I thank the gentleman.

    Any other questions?

    The gentlewoman from New York.

    Mrs. KELLY. Thank you, Mr. Chairman.

    I would like to ask the panel what their estimation of FEMA's due diligence to ensure compliance with the mandatory flood insurance purchase, compliance of homeowners who have federally-regulated mortgages should be? What do you think their estimation is of due diligence?

    Ms. QUINN. Well, FEMA does not directly regulate the banks. The statutory requirement is in the statute that covers FEMA, but the requirement is that those federally-regulated banks or lenders require insurance.

    Since the 1994 Reform Act significantly modified the requirement, which, by the way, has been in place for a long time, that banks require flood insurance. In large measure the increase in the number of policies out there is due to banks doing a much better job.

    Recently, a regulator has imposed some fines on a bank, or at least is exploring doing so, because of a pattern and practice of not requiring insurance.

    I am aware that the Federal Insurance Administration does work with the regulators on a regular basis. I think FEMA is doing everything it should do.
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    Mrs. KELLY. Thank you.

    Mr. CZERWINSKI. Mrs. Kelly, I think that is an excellent question that you pose and it is one that we are being asked to look at by Senator Grams.

    I want to provide a statistic to you. There are 6.7 million properties in the floodplains. As we know, the insurance program covers 4.1 million. Not all of those 4.1 million are in the floodplains, so there is a huge number of properties out there that are not being covered, and I think that it probably gets to the very question you are asking. We hope to have an answer for that maybe within a year or so.

    Mrs. KELLY. Thank you very much.

    Mr. PROCACCINI. This is a historical problem with the program. While no one has done a historical study of the program, there has been much anecdotal information about flood insurance, and it is important, because this is another means of improving the financial health of the program. Along with repetitive losses, it can make a major contribution to improving financial health and getting us toward that goal of financial solvency.

    Mrs. KELLY. Thank you.

    Thank you, Mr. Chairman.

    Chairman LAZIO. I thank the gentlewoman.
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    If there are no other questions for the panel, I want to thank the people who have testified here today. It has been excellent testimony which has been submitted, and your answers to these questions is much appreciated by this subcommittee. We are going to continue to do work on this issue, working closely with Mr. Bereuter and others to see if we can't fashion some solution to the problems that have been outlined here today, and you will be very important in helping us come to that proper balance. I appreciate it.

    The hearing now is adjourned.

    [Whereupon, at 12:10 p.m., the hearing was adjourned.]