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

    The subcommittee met, pursuant to call, at 10:23 a.m., in room 2128, Rayburn House Office Building, Hon. Marge Roukema, [chairwoman of the subcommittee], presiding.

    Present: Chairwoman Roukema; Representatives Bereuter, Barr, Kelly, Oxley, Miller, Grucci, Tiberi, Carson and Israel.

    Chairwoman ROUKEMA. This hearing on the Subcommittee on Housing and Community Opportunity will come to order. Officially we are now in session. Without objection, all Members' opening statements will be part of the record, and if Members do have opening statements, they may have 3 minutes in which to speak. And also, and I believe that our panelists know this, but I would like to repeat it, that without objection, all the written statements, full written statements of panelists on each of the panels will be made part of the record, but we should try to limit our statements to a 5-minute summary of the testimony, and we will have to try to be aware of that 5-minute restriction because we want to get through this hearing today before we get interrupted over and over again with the voting session on the floor.

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    So with that as the opening, we hope that Mr. Frank or other Members of the minority will be here shortly. But in any case, we will continue now with our hearing or begin our hearing. And I'd like to say that this certainly is an important hearing, and I appreciate our witnesses providing all the information for us, because this is a very complex issue and one that has been around for quite some time, National Flood Insurance, and specifically the issues regarding repetitive loss properties.

    The floods have been and continue to be one of the most destructive natural hazards in terms of economic loss, but also emotion loss and in many cases the health and safety of people throughout the Nation. The National Flood Insurance Program is a valuable tool in addressing the losses that are incurred, because it assures that businesses and families have access to afford flood insurance that would otherwise be unavailable on the open market.

    The National Flood Insurance Program has been of immeasurable help to families, not only in New Jersey, but certainly in every State across the country. And it's an integral part of the question of the American Dream and owning one's own home and how we balance these competing needs.

    The National Flood Insurance Program was created in 1968. Prior to that time, insurance companies generally did not offer coverage for flood disasters, because obviously the high risks involved. National Flood Insurance is now available in more than 19,000, almost 20,000 communities across the United States. In order to participate in the program, communities must agree to abide by certain hazard mitigation provisions. And these provisions include adopting building codes that require new floodplain structures to be protected against flooding or elevated above the 100-year floodplain.
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    New Jersey, of course, is no stranger to the floods, and we have over 400 communities that have partnered with FEMA to provide policies that would give $239 million in property loss coverage. That in a small State like New Jersey, and you can expand it into what the costs are across the country.

    Clearly, that is why we need to take steps to reform the National Flood Insurance Program, and today we have not only our panelists of Members here, but others who are knowledgeable on the program and certainly the GAO today will testify that the program and the questions of actuarial soundness, and we know that is a growing issue.

    Clearly, repetitive loss properties are a main drain on the current system. FEMA defines repetitive losses as two or more losses greater than $1,000, each within a 10-year period. About 38 percent of all program claims are repetitive losses, and currently about 45,000 properties nationwide have been flooded on more than one occasion and have received payments of $1,000 or more.

    I won't go into any more of the numbers and the statistics on this, except that it is known that this is a huge and costly and growing problem. The repetitive loss structure is not only a serious drain on the program, but the high cost of multiple loss properties leads to increased premiums for all policyholders. And I believe that's what our Members, our colleagues here on the first panel have recognized, and that is one of the motivating forces for them taking action to deal with this long overdue reform that is necessary. Whether or not we're going to be able to come to that reform in the very near future, we shall see. But certainly I appreciate Congressmen Bereuter, Bentsen and Blumenauer for being here today to help us direct our focus on this issue. And I do believe that Congressman Baker will be joining us at this time as well, and he is a Member of this subcommittee as well.
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    So I welcome you and recognize that our time is limited, so without further questions or further comments, having outlined the dimensions of the problem, I will introduce Congressman Bereuter, who was the one person who first came to me, enlightened me on the subject and has introduced his own legislation. And so we recognize him as the first Member of our first panel. Mr. Bereuter from Nebraska.


    Mr. BEREUTER. Good morning. Thank you, Madam Chairwoman, Members of the subcommittee. Thank you for holding this hearing. Mr. Blumenauer of Oregon and I reintroduced legislation we introduced in the previous Congress, and we had the assistance and support of former FEMA Director James Lee Witt. Before this in previous Congresses, I worked with Congressman Joseph Kennedy, a former Member of this subcommittee, on legislation. And I want to thank Congressmen Bentsen and Baker for their interest and concern for the functioning of the NFIP as well.

    If enacted, the Two Floods and You're Out of the Taxpayers' Pocket Act will help turn the tide against the huge costs associated with repetitive loss properties. Right now, people who own, sell or construct these repetitive loss structures want us to turn our back on the loss to the taxpayers and the huge cost shifting that goes on among premium payers, but we ought to address it. We should have addressed it many years ago, either that or the Federal Government should get out of the business altogether.

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    The policyholders of many of these repetitive loss properties are currently not being charged anything close to actuarially sound rates under the NFIP. The legislation addresses repetitive loss properties in a simple, straightforward manner. The owner of a repetitive loss property will be charged the actuarial risk-based rates for the 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, the policyholder of the property has refused a buyout, elevation or other flood mitigation measure funded by FEMA.

    Today I'd like to use this opportunity to explain in greater detail, but in the very limited amount of time, the five reasons for my support of H.R. 1428.

    First I support the legislation due to the widespread abuse among some policyholders who own repetitive loss properties who are not paying the actuarial rate for their flood insurance. FEMA has identified over 45,500 insured properties nationwide under NFIP which would be categorized as repetitive loss properties using FEMA's definition of two or more flood insurance losses of $1,000 or more within any 10-year period.

    Of these 45,000-plus properties, approximately 10,000 have experienced either four or more flood losses or two to three flood losses that cumulatively exceed the value of the property. This subset of properties is costing the NFIP over $80 million annually, and the average payout is $200 million overall for repetitive loss structures.

    Under NFIP, a regional cross subsidy is flowing from the policyholders in non-repetitive loss areas of the country to those policyholders in repetitive loss areas of the country. In FEMA's defense, it does not have the Congressionally mandated tools to address the cost of repetitive loss. The Two Floods and You're Out of the Taxpayers' Pocket Act will give FEMA the authoritative tools to reduce repetitive loss and to stop this Federal handout and cost shifting to other NFIP policyholders.
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    Second, this legislation will save Federal taxpayers by reducing the NFIP unpaid debt to the Treasury. They pay it periodically, as they recently have. Since 1994, FEMA has been forced to borrow over $2 billion from the U.S. Treasury to cover NFIP claims and operating expenses.

    I certainly know of no private insurance company that can long stay in business if it disregards good actuarial practices. American taxpayers are paying the cost for those individuals who choose to live in higher flood risk areas and who fail to make the prudent mitigation actions.

    This bill will help to ensure the future solvency of the NFIP and to reduce the need for NFIP to borrow from the Treasury. Moreover, the bill would also save substantial taxpayer money the cost of Federal disaster relief assistance as many properties will be bought out and removed from Federal disaster aid-prone areas.

    In addition, the legislation explicitly provides that many types of Federal disaster relief assistance will be not given to the owners of repetitive loss properties if they refuse to accept mitigation assistance.

    Third, the legislation is based on the fact that NFIP gives subsidized flood insurance to disaster-prone areas. The Federal Government is encouraging development in these areas. The question needs to be asked whether rebuilding is merited in repetitive loss high-risk areas. I certainly believe in many cases the answer is no.

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    Fourth, because of a predicted future change in weather patterns, this legislation should be enacted. Dr. William Gray, a highly respected Professor of Atmospheric Science at Colorado State University, for example, one of many respected climatologists, predicts that over the next decades, the East and Gulf Coast States will be subject to more frequent and forceful tropical storms, including hurricanes.

    Due to the number of repetitive loss properties on the coast, additional hurricanes will result in huge numbers and amounts of additional claims against the NFIP. It is imperative that the NFIP is changed before the eye of yet another hurricane is upon us.

    Lastly, the demographic reality is that millions of Americans are living closer to the ocean, closer than ever before in numbers and in percentage. According to the Census Bureau, within the next 10 years, 75 percent of the U.S. population will live within 100 miles of the U.S. coastline. Due to this demographic factor, the time is ripe to change the structure of the NFIP and the way it works.

    In summary, this legislation is needed. It will stop treading through waters of repetitive loss after repetitive loss. This legislation is the right thing to do at this time. I look forward to the hearing and the hearing of the others of my colleagues and others who will testify here today, and I pledge to try to work with you, Madam Chairwoman, and the subcommittee of which I am Member to craft legislation to address these problems.

    Thank you.

    Chairwoman ROUKEMA. I thank you, Mr. Bereuter.
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    I do want to acknowledge the fact that the Chairman of the full Committee, Mr. Oxley, has arrived. Do you just have an opening minute or so statement, Mr. Oxley?

    Mr. OXLEY. That's correct, Madam Chairwoman.

    Chairwoman ROUKEMA. Pardon me?

    Mr. OXLEY. That is correct.

    Chairwoman ROUKEMA. Thank you. Go ahead.

    Mr. OXLEY.. It's good to be here, and thank you for your leadership on this issue. And let me commend my colleagues for their interest in this very important issue. And I'm sorry that the Emergency Management Director from Ohio called, but ironically, he couldn't be here, because he's with the governor looking at the flood damage in Hamilton County along the Ohio River. So this is indeed timely in that respect.

    For sheer inventiveness, I have to congratulate the authors of H.R. 1428. ''The Two Flood Insurance and You're Out of the Taxpayers' Pocket Act of 2001.'' I've been around here 20 years next week, and that will be one of the most inventive titles for a piece legislation. So, Mr. Bereuter and Mr. Blumenauer, you are to be congratulated on that as well.

    This subcommittee will take a serious look at both pieces of legislation and the overall effect this has not only on the taxpayers, as Congressman Bereuter pointed out, but also the effect it has on people and their lives. This is something that I've had an interest in for a number of years. We've had some flooding in my district for a number of years, and the farther south you get, the worse it gets in Ohio and certainly Northern Kentucky.
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    So my hat's off to the Chairwoman for her leadership and also to my colleagues for what I think will be an excellent hearing and an opportunity to explore some of these issues that we've grappled with in the past. And I think if you look at the graph that Congressman Bereuter passed out, it gives a pretty stark appraisal of where we have been the last few years resulting in appropriations and the need for FEMA to borrow substantial amounts of money.

    So with that, Madam Chairwoman, I would ask unanimous consent to make my full statement part of the record. Thank you.

    Chairwoman ROUKEMA. Thank you. Yes, unanimous consent is there for all Members of the subcommittee.

    And with that, we will now recognize Congressman Richard Baker from Louisiana, also an active Member of this subcommittee.


    Mr. BAKER. Thank you, Madam Chairwoman and Members of the subcommittee. Madam Chairwoman, I have some additional addendums I would like to include with my written testimony for inclusion in the record.

    Chairwoman ROUKEMA. Without exception, so moved.
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    Mr. BAKER. Thank you, Madam Chairwoman. Often, and far too often, the refrain is heard in Louisiana, we're a State that's either underwater or under indictment.


    Mr. BAKER. And I appear here today, Madam Chairwoman, as an expert on any subject the subcommittee wishes to pursue.

    First I'd like to tell you that I have never met anyone in my State who likes to flood. Now I'm sure there are some who profit from repetitive loss activities, and that's regrettable. But most folks I visit with during the floodwater's encroachment are very pained and angered by their circumstance. They don't care if it's local water, State water or Federal water, all they know is they've got water in the bedroom, and they're not happy.

    Second, floods are dynamic events. They're like animals. They change from day to day. Depending on wind, tide and moon, we have varying circumstances resulting from the same amount of rainfall, also where the water comes down to a large extent determines where the damage occurs. A property which is not flooded today has no assurance it won't flood in the future as new developments continue, as local governments fail to maintain appropriate drainage standards, circumstances are often very unpredictable.

    Third, significant efforts are being made in some jurisdictions to mitigate losses and to make changes. For example, the Congress and the State together have appropriated funds necessary to construct a $150 million drainage canal in my district, the most important aspect of which is local folks who are very tax averse voted a property tax on themselves to provide the local share of construction cost. We're making effort.
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    So, what's the problem? When you begin to look at the nature of the repetitive loss properties, FEMA knows who they are. To a large extent, I know who they are in Louisiana. We know where they are. We know what the claims amount to, and we could buy them out. I suggest we could take that line of credit we now have for FEMA, extend it to identifiable repetitive loss properties, buy them off and get them off the list.

    As you will note, over the line of the program, it is a line of credit. No other natural disaster is treated similarly. The premiums, in fact, pay off the debt. Today if you look at the status of the fund, there is a surplus of money in the fund. Now we have a contingent liability we've all identified known as Tropical Storm Allison, which will easily eat through that collective body of money. But over the near term, the premium flow will greatly diminish the losses incurred. So it's a line of credit extended by some States to other States, which is then paid off by those who benefit from the program.

    I reference, in fact, year-end results, the chart which has been included in the record, which shows since 1994 when a structural change was made where no more Congressional appropriations are utilized to pay off flood loss mitigation and where premium dollars pay off the borrowed funds, and today we have a small fund balance.

    Second, there are a number of ways to solve the problem of repetitive loss properties and those who engage in abusive practices. One, as my friend from Nebraska has suggested, is to cut people off who flood repetitively. The problem with that can be best exemplified by a member of my own staff, a young lady recently married with children decided to buy their first home. I can tell you, they went through extraordinary due diligence. They did everything one could reasonably expect to be done in order to determine if the property they were acquiring was subject to flooding.
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    Two months after occupying the house, it was the only house, but the house that flooded in a very recent storm. They moved out. Damages were paid. The house was renovated. Two weeks after moving back in, Tropical Storm Allison came through and they were again the only house to flood within the subdivision. Were they in bad faith? They did not exercise good judgment? They certainly bought flood insurance. They paid the premium. Should we now tell this young family whose value of the house has fallen below the mortgage they owe that we are going to be out of the program and have to sustain repetitive loss, can't sell the property for now what they owe on it? I don't think that's fair, and I don't think that's what most Members of this subcommittee would like to see happen to their constituents.

    There is another remedy. And let's look at the premium flow. Where does the money come from to now pay off the losses we incur? It comes from people paying the premium. Let's talk to FEMA. What's the percentage in your State of people subject to high-risk flooding hazard that actually paid premium to the program? My State is one of the best in the country.

    For example, not to pick on my colleague from Texas, but just by way of example—we share the same view on this matter—when you look at the relative size and relative value of property in Texas as contrasted with Louisiana and then look at the premium dollars currently in effect, in Louisiana we have $140,398,000 worth of premium in effect. Texas, by contrast, has $127,620,000. We have $20 million more premium being paid by our State than those in the State of Texas, which has a similar concern about the proposal.

    What we should do is condition I think participation levels by a State with identifiable flood problems to a certain level so that we have more premium flow. My concern, however, is when we get to the 50 percent level that Louisiana now enjoys, for example, we will have significant funds in the pot, which then may be subject to interest by others for other purposes.
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    This is a problem which can be fixed. I simply call on the subcommittee to exercise great caution, not to move quickly. The value of this program to the people who suffer the ravages of flooding is immeasurable. And the losses to unreasonable or arbitrary constraints and denying people access to this help I think would be regrettable.

    Madam Chairwoman, I appreciate your courtesy and this opportunity to participate.

    Chairwoman ROUKEMA. I thank you, Mr. Baker.

    Congressman Bentsen from Texas. Already been referenced. Would you like to explain your legislation?


    Mr. BENTSEN. Thank you, Madam Chairwoman. And I appreciate the subcommittee holding this hearing. As with Mr. Bereuter and Mr. Blumenauer, I also reintroduced the bill that I had introduced in the last Congress to reform the National Flood Insurance Program as it relates to repetitive loss properties. And I am hopeful that the subcommittee will be able to come up with a bill this year.

    We in the last Congress tried to work to resolve the differences between our bill. We got close. We didn't quite get there. And I hope that we can and take into account the information that Mr. Baker brought as well.
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    Since the last time I testified on this bill, my district and the districts around my district have suffered a storm of severe proportions that is estimated to be somewhere about a 500-year event, a storm that has flooded, I believe at last count, around 70,000 homes. There have been about 90,000 claims made to FEMA. FEMA estimates that their obligation at this point is about $2.4 billion, and the property assessors assume that the total damage is close to $5 billion.

    Included in that are a large number of people who are in the Flood Insurance Program, and it's estimated that overall, the number of claims that will be made to the NFIP as a result of Tropical Storm Allison will be about 25,000 when it's all said and done. That being the case, it puts me a little bit awkward situation to talk about reforming the NFIP program when I have so many constituents who have just been affected by this terrible tropical storm. But in fact, I think that that is something that we ought to do, and I think those of us who represent constituents who participate in the program should be at the forefront of trying to protect this program.

    Because I do not believe that the NFIP program for the vast majority of American homeowners who use it is a boondoggle. The vast majority, in fact, all of my constituents who use the NFIP program, and it's 30,000 or more, don't live in fancy beach houses along the Gulf Coast, they live in suburban neighborhoods along watershed, some that are undergoing flood control projects, some that are projects that have been authorized for 40 years, but Congress hasn't funded.

    Some of the worst abusers of the repetitive loss program are, in fact, in my district, and I think we ought to work to buy those out. But I also have a number of constituents who went through flooding in 1994 and went through flooding in 1978 and 1976 and were told that they might be bought out. But as it turned out, there wasn't enough money for the buyout. So all we could do was repair their homes and let them get flooded again. I talked to a woman the Sunday after the flood who was flooded seven times. Actually, she flooded eight times, because she flooded twice during this last storm. But she holds on. She's a cancer survivor, and she raised eight kids in that house, and she said she's prepared to go back if we're not going to be there to buy her out.
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    I have a constituent of mine, Mayor Wayne Riddle of Deer Park, who is an insurance man who was about to give up his flood insurance, but chose to keep it because he wanted to practice what he preached, and he was glad he had it, because he hadn't flooded in 20 years.

    Madam Chairwoman, the difference between the bills are this. Both of us believe that we should put money in for mitigation and put money in for buyouts. And Congress has been deficient in the past of giving FEMA the funds they need to do it. Both of us believe that the most repetitive properties ought to be bought out. But where we have a disagreement is how you define a repetitive loss property. In my bill, I think that we should tie that definition to the value of the house.

    I don't think that we should define it to the number of times that you are flooded, because as I read Mr. Bereuter and Mr. Blumenauer's bill, you could be flooded twice in a period 20 years or 30 years and file two claims totaling as little as a couple of thousand dollars and FEMA could decide that they want to buy you out. I think that's too broad of a targeting.

    I think that we should focus on the worst abusers of the system, not the American people who have paid in thousands of dollars of premium to this program only to be caught up in trying to clear the watershed.

    The other thing I would tell you is this. The statistics show that 96 percent of the repetitive loss properties are what are called pre-FIRM properties. These are before FEMA went in and began mapping the floodplain. So a lot of people are in the floodplain that didn't realize they were getting into it in the first place that are being caught up in the repetitive loss property.
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    And we also know that the floodplain moves. FEMA went through a remapping of some of the major watersheds in the Greater Houston area last year and the previous couple of years. I had 9,000 constituents who prior to that time were not in the floodplain who are now in the floodplain and are now subject in many cases to having to get flood insurance.

    So I think we have to be careful who we think the culprits are here. And I don't think it's the majority of the people who are in the program, and I think we also have to be careful about what we do to this program that will affect the property value of these homeowners going forward. It is a program that we need to fix. I think we can get there and fix it, but we need to keep into consideration the homeowner's property rights, who the culprits are in this. And I would hope that we would keep in mind that the NFIP program is a good program, because the private market does not write this insurance. And when you flood, you have nowhere else to turn.

    I appreciate the gentlelady for having these hearings.

    Chairwoman ROUKEMA. All right. Thank you, Congressman Bentsen.

    Now we welcome Congressman Blumenauer to the panel.


    Mr. BLUMENAUER. Thank you, Madam Chairwoman. I was heartened by Chairman Oxley's comments, and I deeply appreciate your leadership in allowing this hearing to move forward.
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    As was referenced, I have been working for the last couple of years with Congressman Bereuter on this legislation. My goal in Congress is for the Federal Government to be a better partner, promoting the livability of our communities. And it's hard to imagine a simple, direct step that can have more impact on more people, and on improving the environment and quality of life, than moving forward with meaningful reform of the Flood Insurance Program.

    I won't repeat the details. My colleague, Mr. Bereuter laid them out more clearly than I. I have a statement that I have submitted for your record.

    I would make a couple of points if I may. One is that this legislation is not designed to force anybody to do anything. FEMA has had excellent leadership with Mr. Witt previously and Mr. Allbaugh, who I think has been an excellent appointment by this Administration. FEMA is doing a good job, but they need more tools to help move people out of harm's way.

    I think we do people no benefit by enabling repetitive flood loss, having people in harm's way. And I think the thrust of the legislation is not a situation where we're going to move people who had de minimis losses. You will hear from people at FEMA that this is not the intent. But the broader definition is important to be able to move forward when you have a number of properties and you need to be able to have funds available.

    FEMA wants to concentrate on the areas with the greatest impact. We have used as a poster child one property in Houston that in less than 20 years has had over $800,000 worth of repetitive flood loss for a home that is valued at less than $115,000. I haven't seen the results since the last flood, but it's very likely that that total has been boosted.
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    But it's not just a case of the loss of money, although the Bush Administration has estimated that they could gain $10 million in budget savings and are supporting something similar in this area.

    There is another important advantage, and that is improving the environment. If we encourage people to live in areas that are repeatedly flooded, it is harder to move forward with mitigation that FEMA has done with spectacular success moving people out of harm's way and site hardening their locations.

    This legislation would simply require that people pay full freight or they accept funding to move or to harden the site. And if we do that, it's going to make flooding over the long haul less damaging, because we will have people moved out of harm's way. We'll be able to allow that land to be used as nature had intended, to be able to absorb flood damage. So rather than contributing to stormwater runoff in the future, it will actually make future flood losses less, reducing the demands on the program.

    And last, but not least, I want to talk about the human impact, because I agree with, although I haven't had a devastating situation in my State as Congressman Bentsen has experienced, that we do people no favors to subsidize their continuing to be in harm's way. In the last session of Congress I think all our hearts were touched by the people in North Carolina and the devastation there.

    Americans are instinctively I think heroic. They look out for their neighbors. And it isn't just a case of somebody deciding to live in a home where they've raised their kids. We saw in North Carolina where people died trying to save their neighbors, or in Houston just last month, there was a man electrocuted by his television, and his mother moved forward to try and help him and lost her life. If we have a Federal program that is not an efficient use of tax dollars, that's subsidizing people living in harm's way, that is encouraging more flooding over time and is encouraging people to put not only their own life at risk, but that of others, I think it's time for us to take a hard look, step back, approve reasonable reforms that have been supported by this Administration, by prior Administrations, and most importantly I think, be able to give the tools to the dedicated men and women who are trying to solve a problem.
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    I deeply appreciate your courtesy in allowing this hearing. And I think that with the help of this subcommittee, we can make whatever fine-tuning is necessary as far as definitions are concerned. But we can make sure that we make this program work better over time, improve the environment, save money, and save lives.

    Thank you very much.

    Chairwoman ROUKEMA. I thank you, Congressman Blumenauer. I will make the point and I suppose we have some questions for our panelists before we get on to our next panel. But I would simply say that at this point, as you probably know, I am a strong supporter and co-sponsor of Mr. Bereuter's bill. I've heard and I associate myself with his comments regarding the Federal handout with respect to cross-subsidies.

    But I have heard your other comments. I don't know that I've heard anything that can help us reach an accommodation to balance out these cross purposes here or the individual needs of States like Louisiana and Texas. But as opposed to constituents who are cross-subsidizing and paying much higher premiums. But we'll go into those questions with our later panelists and certainly work with all four of you to see if we can come to an accommodation on this or some sort of a compromise. And with that, I'll call on Mrs. Kelly if she has questions. Yes?

    Mrs. KELLY. Thank you, Madam Chairwoman. I've looked at both your bills. My area has experienced tremendous storm damage a couple of times, and the latest was Hurricane Floyd where we had severe losses.
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    I am interested, Mr. Bentsen, in your definition. I have some concern about where your definition defines three or more losses with cumulative damages equal to 125 percent of the market value of the structure. I'd like a little more explanation of that. Because after you've been flooded out a couple of times, there's not a whole lot of market value for your home.

    What I'm really kind of finding out is this a kind of a sleight of hand here so the Government's not going to pay these people? Or is that the original mortgage on the house? How are you going to define what the market value of the structure is?

    Mr. BENTSEN. Mrs. Kelly, that's a good question. The way that that's determined, and we crafted this in working with FEMA and working with other State emergency people, buyouts occur already under the program. It's a voluntary system. The way they determine market value is they look at pre-event market value of the property. That's how they determine market value. In Houston right now they're looking to buy out 2,000 homes if they have the money. But that's how you determine it.

    It's an established mechanism with which you do it.

    Mrs. KELLY. Excuse me, but I want to follow up on that just a minute. Pre-which event? The first event, the second event, or the third event?

    Mr. BENTSEN. They would look at the claims that were filed and paid and compare that with the market value of the house after the third event.
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    Mrs. KELLY. After the first event?

    Mr. BENTSEN. After the third event.

    Mrs. KELLY. After the third event?

    Mr. BENTSEN. Yes.

    Mrs. KELLY. So they would look at the claims and compare on a lowered market value, if I understand you correctly?

    Mr. BENTSEN. The market value depends on many factors, as you know, but market values fluctuate in every part of the Nation. So they would just look at—I mean, market value, basically you go and look at what the appraisal district or whoever the entity is. In our case it's an appraisal district, determines what your property value is for property tax purposes.

    Mrs. KELLY. I don't want to belabor this, but on the other hand, it seems to me you pointed out exactly what I was trying to drive at, is market values do fluctuate. You could have a home for $150,000. It gets flooded once. It's now worth a lot less than $150,000. The second time it gets flooded, everybody in the neighborhood, everybody in that community, everybody in that town knows that house got flooded.

    Just take the example that Mr. Baker brought up. That one individual house. That couple now lives in a house that does not have any market value compared to what they owe on the original mortgage.
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    You're talking about a third flood, and they only get 125 percent of what their market value would be after that third flood. I submit to you that that's not going to be enough to help this poor couple.

    Mr. BENTSEN. Well, Mrs. Kelly, two points I would make. I don't necessarily agree that market values continue to decline as a result of flooding events. It may be in some cases true and not in others. But second of all, the buyouts are already determined,that are conducted by FEMA through the States, are already determined on what the prior event market value is, regardless of whether we pass a bill or not. That's just the way they run the program.

    And the third point I would make is this. For those who might feel that having three events within a 5-year period—and I'm very flexible in the definition. I just think it should be tied to the market value and not just any de minimis value. If it's a decline in value, it would make it more likely that you would breach the threshold under that scenario than the reverse, which would be property values continue to rise as they rise in the entire geographic area.

    Mrs. KELLY. Mr. Baker, do you want to follow up on that for a minute?

    Mr. BAKER. I just want to emphasize the point that there are two cures possible. One, as Mr. Bentsen and Mr. Bereuter and Blumenauer have pointed out, is on the payment end and the repetitive loss end. I hope the subcommittee will examine the front end. In private life, if you don't have car insurance and you're in a wreck, you not only lose the value of your car, you may go to jail in some States.
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    If you don't have flood insurance, you can have two events at least, maybe more depending on FEMA's judgment, you still get coverage. If you look at the percentage of people who have exposure to flood events who do not have insurance and force those individuals into the pool to pay the premium in advance, you will have more than adequate resources to pay off losses.

    By virtue of explanation, New York has $55 million worth of premium in force as contrasted with Louisiana at $140 million. No other insurance program I know of says we will pay your damages. And by the way, you could start paying premium in 2 years. If you don't pay the premium, you don't get coverage. Now that's a very stringent requirement, but that's how life works in all other cases. No other natural disaster is treated the way the Flood Insurance Program is paid. A line of credit, which is repaid with premium. You have more premium, we don't have to worry about it, and we will have the cash that FEMA needs to buy out repetitive loss properties. Baton Rouge has 279. FEMA has money to buy 50.

    Give us the money. We'll get rid of those properties. We protect the environment. We get those people out of harm's way at true market value, not subsequent to the loss. I thank you.

    Mr. BEREUTER. Mrs. Kelly, may I respond?

    Chairwoman ROUKEMA. I'm going to let Mr. Bereuter respond, but I do want you to know that we've gone well over the 5-minute period.

    Mr. BEREUTER. Mrs. Kelly, Members of the subcommittee, the market loss criteria creates all kind of difficulties. You pointed out one. The legislation that we have, on the other hand, continues to permit the property owner, that is a repetitive loss property owner, to buy insurance, to pay the premiums. And they don't even have to go to actuarial rates after the second flood if the other condition isn't met. We don't force anybody out of their homes. We're simply saying, if FEMA comes along, offers a buyout, an elevation or other kind of mitigation and the property owner refuses, then, in fact, and only then do they begin to pay actuarial rates.
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    Mr. Bentsen has $100 million authorization for appropriation for this mitigation fund. They need more money, obviously. We have $120 million, by $70 million transferred into $50 million. But I think that the market value criteria actually is tougher in some cases on the property owner than ours which requires two conditions to be met.

    Chairwoman ROUKEMA. Thank you all very much.

    Next we have Congresswoman Carson.

    Ms. CARSON. Thank you very much, Madam Chairwoman. You have probably answered this question three different ways, and I still don't get it. An analogy would be when the highway program first originated, they would give homeowners replacement value. And when they tried to get moved, they would find that inflation had, in fact, spiraled and had not met the actual cost of their places of abode. In Princeville, those homes were absolutely worthless to everybody but the people that owned them. They had historic value, significance and that. And when you put a price tag on replacement value, the people in Princeville are out to lunch. I mean, they don't get anything, because according to the appraisers, the property was worth nothing. But it was worth something. But in terms of the dollar application to the property, it was nothing.

    How then do these measures undergird those kind of circumstances to ensure that the homeowners are not abandoned if you will, because their properties, according to appraisers, were worthless? You know what I'm saying? I don't care who answers, Madam Chairwoman.

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    Mr. BEREUTER. May I respond first briefly, and that is——

    Chairwoman ROUKEMA. And we'll be very mindful of the fact that we have only 3 minutes left.

    Mr. Bereuter.

    Mr. BEREUTER. First of all, of course, the value of the property in a buyout by private sector, whoever, will never be enough to satisfy the owner, because they're looking at their original investment in most cases. But in most cases, when there is a buyout, FEMA is the most generous purchaser of that property, because it's been subject to flood. So their best option usually is a FEMA buyout.

    Mr. BENTSEN. If I can just add very quickly, we're not talking about what the buyout price is. There is existing law that covers that and property values. What our difference is is when do you give FEMA the authority to raise the premiums? Both of us have a condition that if you don't accept a buyout or mitigation, then they can raise your premiums. We have different standards of when they can do that based upon what you define as a repetitive loss property. And in my case, I use based upon the claims paid out against the value of the property. They use the number of claims that are paid out.

    Mr. BAKER. Mrs. Carson, if I might jump in real quickly, I would refer you to the Corps of Engineers Acquisition and Replacement Methodology when you're building a construction project. The Corps goes in and not only provides you with actual replacement value, they help you with packing costs, moving costs, if there's special considerations. There's a gentleman who is handicapped who has a home built entirely around his particular need. Those assets have no value to anybody else but him. But the Corps, because of the construction project, is going to rebuild a replica of his house.
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    Now there would be no way on an appraisal basis for him to be made whole. This is a separate methodology than what is in the National Flood Insurance Program. And I recommend to you the Corps' process is very fair and equitable as compared to what is being proposed.

    Ms. CARSON. So you gentlemen are dealing strictly with the flood insurance and the premiums?

    Chairwoman ROUKEMA. Yes. All right. Thank you. Mr. Grucci, do you have a question? No question? Mr. Quinn? I'm sorry. I didn't mean Mr. Quinn. I meant Mr. Miller.

    Mr. MILLER. Thank you, Madam Chairwoman. One of you mentioned a 500-year flood. Where was that at?

    Mr. BEREUTER. Houston.

    Mr. MILLER. Houston? I know most communities if they have a 100-year preparation they're happy, and if they have 200 years, they take a lapel and fluff it, because they're kings. I can't imagine what in the world you could do to prevent a 500-year flood.

    Mr. BAKER. Move.

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    Mr. MILLER. I mean, that is an incredible flood.

    Now FEMA is talking about requesting $1 billion for new mapping basically is what they—and the Administration has got $17 million proposed or something. I don't know what city they're going to map for $17 million, but obviously, we're short.

    One of you had mentioned that we should acquire the property based on property values rather than the amount of losses that a property has incurred. And one of you said that the National Flood Insurance Program—NFIP—is not a productive use of dollars, and I kind of agree in some form. I have a question that relates the following scenario: Someone owns a home, and because of climatic changes or whatever, topographic changes that might have occurred, ends up in a flood hazard area that they have to buy insurance through the NFIP. It was something they could not have known about going into it, but they buy flood insurance from NFIP that will cover it, because nobody in the private sector is going to write them a policy knowing that they're most likely going to lose money in writing them a policy.

    My question is, how do we deal with the individuals who go into an area that is prone to risks like this and still buy the house, and we sell them a policy? Is there anything being done about that?

    Mr. BAKER. Let me jump in because, again, it's repetitive.

    Mr. MILLER. And this is the question.

    Mr. BAKER. There are people who get benefits today who do not pay premium. That doesn't happen anywhere else. If you require the person to pay a premium to get a benefit, much of this goes away.
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    Second, the chart shows that although there are years where you run an excess draw on our line of credit, the line of credit is repaid entirely with premiums. Since 1994, that's the way this program works.

    Mr. MILLER. You're saying if you don't pay the premiums, you don't get the benefit?

    Mr. BAKER. That's the way life works everywhere else.

    Mr. MILLER. I like that.

    Mr. BAKER. Well, my answer is on the front end of the problem, not the back end. Rather than identify—now, we should get the repetitive abusers out.

    Mr. MILLER. Yes.

    Mr. BAKER. Once that's gone, which is a relatively small pool—that's roughly $200 million a year of repetitive annual losses—take them out of the program, require people to pay a premium, and let a good program work. Don't pay people a benefit if they're not participating voluntarily and paying a premium.

    Mr. MILLER. I can't agree with you more. In my home area, we don't have flooding as a rule. I mean, occasionally, some minor thing happens that usually the Government has not provided flood control channels to accommodate it because of growth in areas. But currently, are we selling insurance premiums to people who are buying in an area that is prone to floods already?
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    Mr. BENTSEN. Yes.

    Mr. BEREUTER. Yes.

    Mr. MILLER. Does your bill address that?

    Chairwoman ROUKEMA. Excuse me. Excuse me, Mr. Bereuter, I didn't hear what you said. You said yes, but in response to what?

    Mr. BEREUTER. Yes. Several of us said yes.

    Chairwoman ROUKEMA. In response to what? Yes, what?

    Mr. BEREUTER. That, in fact, they are buying flood insurance. It's available to them.

    Mr. MILLER. We have areas that we know are likely to flood. We know that we're likely to be put in the position to have to buy that home back if we have a fault, and we're selling policies in those high-risk areas today, putting ourself in the situation?

    Mr. BENTSEN. If I might answer, Mr. Miller, I'm from Houston, Texas. It's the fourth largest city in the United States. It's the third largest county in the United States. In my district alone, there are about 30,000 people who are within the floodplain. And we sell insurance to them.
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    The law says that if you have a mortgage through a federally insured institution you have to have flood insurance, or if you've ever received any assistance or have an outstanding SBA loan through disaster assistance. But the point is, if we were to stop selling insurance to people in what are called pre-FIRM, the homes that were built before the floodplains were mapped—and the floodplains change because of upstream development and other things like that—you would have to go through, say, Southwest Houston and wipe out entire neighborhoods. I don't think the Federal Government is prepared to underwrite the cost of doing that.

    Mr. MILLER. Are we still building new homes in these floodplain areas and then selling those insurance policies to those people in those areas?

    Mr. BENTSEN. You're not allowed to—FEMA has agreements with—and they'll talk to this point. But they have agreements. In fact, we're going through this in Houston right now, where when cities and counties came into the Flood Insurance Program, they had to agree on plotting land and elevation requirements and the like, mitigation requirements, once they figured out where the floodplains were.

    Mr. BAKER. It's extensive. You can drive through a city street, see one house that's 10 years old sitting on the ground, and you can drive right next to it, a new construction, it's five feet in the air. Those are all results of the FEMA requirements.

    Mr. MILLER. So the new homes are in compliance?

    Mr. BAKER. Built above what they believe to be is a floodplain.
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    Mr. MILLER. I'm familiar with flood hazard areas, but I know in your specific communities, it's a real problem because it encompasses a huge area, and I'm not even implying that we should not provide that insurance. Are we still allowing homes to be built that are going to be in these risk areas that we're—the Federal Government—are likely to suffer a loss, but we nonetheless provide the homeowners' NFIP policies?

    Mr. BLUMENAUER. And if I may?

    Chairwoman ROUKEMA. Yes, Mr. Blumenauer.

    Mr. BLUMENAUER. You started by talking about an unimaginable 500-year event. You've seen in Northern California, since I've been in Congress, I think there have been three floods of the century in a decade.

    The impact of unplanned growth, paving wetlands, and global climate change suggests that what we have seen now is the tip of the iceberg. And if we don't get this program right, we're going to find that FEMA and this Congress is contending with paying for it in disaster relief, more people in harm's way, and it's going to be more serious over time. I mean, look what happened in West Virginia two weeks ago. There's something going on here, and if we don't give them the tools to start getting ahead of the program, it's going to eat us alive. And flood insurance actually would be just a small part of the problem.

    Mr. MILLER. Thank you, Madam Chairwoman.

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    Chairwoman ROUKEMA. All right. Thank you.

    Mr. Israel.

    Mr. ISRAEL. Thank you, Madam Chairwoman. I appreciate your leadership and the leadership of our colleagues on this issue.

    FEMA reports that New York State has experienced about 7,600 floods since 1978; 2,886 of those are repetitive loss properties. Last Monday I stood in my district on something called the Ocean Parkway, which was aptly named, because the parkway almost fell into the ocean 10 years ago during severe flooding. It came within 15 feet. And a breach of the Barrier Islands in my district would cause dramatic surges of flooding on Long Island's mainland, threatening thousands of homes, businesses, even a hospital.

    I believe that the homeowners and businesses there have a reasonable right to protect their investments, but that that protection should be fair and should not be abusive. And I agree with Chairman Baker when he says that we have to act in a responsible and fair manner to solve repetitive loss problems.

    My question is to Congressman Blumenauer who is a champion of sustainable living and sustainable growth in this House. Separate and apart from H.R. 1428, are there sustainable growth strategies that attempt to strike a reasonable balance between those who are living in coastal areas and natural flooding conditions? What should we be doing separate and apart from this legislation in order to try and strike that balance?

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    Mr. BLUMENAUER. I would hope, Congressman Israel, that we can use the attention that's being focused on your work here and the problems that have resulted to look at other areas where we're investing in infrastructure, in water resources, working with the Corps of Engineers to help encourage simple, common sense steps like removing people who are on the water side of dikes and levies. And Congress has not enabled the Corps to remove them, for instance.

    It would seem to me that we ought to have a broader view of this as being a larger picture. And the men and women who are going to be testifying after us have chapter and verse in terms of things that they're trying to do on the ground. We're seeing tremendous leadership on the State and local level where people are trying to move ahead of it, and I would just hope that Congress in our funding programs, in terms of disaster relief, in terms of infrastructure investment, and encouraging communities to plan on a regional basis, that we can be a full partner with them. Right now I feel Congress is a little bit missing in action.

    Mr. ISRAEL. Are there sufficient funding programs at the Federal level to encourage partnerships with local governments and State governments for voluntary acquisition programs and property buyback programs?

    Mr. BLUMENAUER. I think all of us agree we need to be putting more money into that. It's seriously underfunded.

    Mr. BENTSEN. If I might, Mr. Israel, there are a couple of programs. One is Project Impact which the Administration chose not to fund, and FEMA is relooking at how they're doing that. It's a pre-disaster mitigation program both for flooding, earthquakes and the like. And we've used that in my district. I got a grant for an area in my district to buy out 20 homes in the area of Cresthaven that had been flooded repetitively, and the people wanted to be bought out.
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    And as I stated in my testimony, a lot of times what happens is there are people who want to be bought out, but we don't have enough money. Because the way the law is written is 15 percent of the total disaster assistance—there's money appropriated equal to 15 percent of the total disaster assistance for a federally declared disaster area that can be used by FEMA and their State partners for buyout in other mitigation.

    In Harris County, as I said, they're looking to buy out 2,000 homes out of this program, but they're probably not going to be able to get there, because they may not have enough money to do it. So Congress really does need to step up to the plate where people do want to be bought out. But the only difference between us is we have to be careful in how much authority we give to FEMA and the Federal Government in determining where they want to buy out—the most repetitive, the worst abusers, or the houses that have flooded the most versus whether we want to give the Federal Government broad authority to clear the floodplain, and I think we have to think very carefully about how we want to do that.

    Mr. ISRAEL. Thank you.

    Chairwoman ROUKEMA. All right. Thank you. I thank the panel. Certainly as I said in my opening statement, there are a lot of complexities to this subject, and you've outlined them very well, and we shall see if we can come to an accommodation. This dialogue has even added more questions in my own mind.

    But we'll work with you. And certainly we will—I'm sure that you have raised a number of issues that the next panelists with their experience in the field will be able to help give us some relief and direction and counsel on. Thank you very much.
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    Will the second panel please come forward? All right. I would like to welcome you here today and thank you for your participation. I would note for all here in attendance that we have a panel of three members who will be speaking accompanied by assistants. But the three who are speaking have considerable experience in the field, and we're very grateful for you being here to not speak necessarily in abstractions, but attending to principles as well as experience that you've had.

    And with that, I will introduce you as you speak. The first one will be Mr. Robert Shea, who is accompanied by an assistant, Mr. Howard Leikin. Mr. Shea is the Director of the Federal Emergency Management Agency as of June of this year. Is that correct, Mr. Shea?

    Mr. SHEA. Actually, the Director is Joe Allbaugh, Madam Chairwoman. I'm the Acting——

    Chairwoman ROUKEMA. Oh, I'm sorry. Deputy Administrator. I'm sorry. I'm sorry. Deputy Administrator for Mitigation.

    Mr. SHEA. That's correct, Madam Chairwoman.

    Chairwoman ROUKEMA. Federal Insurance Administration. But the point is, of course, that you have not just come to this department, but you've had nearly 25 years of emergency management experience serving in various capacities in FEMA. And for that, we are most grateful for you being here and giving us your advice and counsel. And you are accompanied by your Deputy Administrator who will not be speaking formally, but will be adding his supplementary understanding when necessary. Mr. Shea.
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    Mr. SHEA. Thank you very much, Madam Chairwoman. And thank you, Members of the subcommittee. As Madam Chairwoman said, my name is Bob Shea.

    Chairwoman ROUKEMA. Excuse me. I think you're going to have to pull those microphones closer. I don't quite know what the problem is with these microphones, but you have to speak directly into them and very close up. Thank you.

    Mr. SHEA. Thank you. I am the Acting Administrator of the Federal Insurance and Mitigation Administration. And as you indicated, joining me today is Howard Leikin. Howard is the Deputy Administrator for Insurance. I have been in my job for about 30 days, as you indicated, but I have extensive background in mitigation. Howard, however, is a wealth of information on Federal insurance issues.

    I appreciate the fact that you are willing to put our testimony in the record, and I wonder if I might just make a few brief opening comments, Madam Chairwoman.

    Chairwoman ROUKEMA. Please. You have 4 minutes left. Thank you. Of your time.

    Mr. SHEA. Well, it won't take me anywhere near that long. So we'll speed this along. I would really like to thank the subcommittee, Chairwoman Roukema, and particularly Representatives Bereuter, Blumenauer and Bentsen and now Representative Baker for addressing an issue of importance not only to the health of the National Flood Insurance Program, but to the many citizens living in flood-prone areas.
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    Congress and the Executive Branch have built an enviable arsenal of tools to respond to disasters, both pre-disaster and post-disaster. But one of the primary tools, the National Flood Insurance Program, is seriously challenged by the subject of this hearing. That is, repetitive loss or multiple loss properties. These properties have a disproportionate impact on the National Flood Insurance Fund. Thirty-eight percent of our losses are associated with just 15 percent of the insured properties that have had any loss at all, a very small percentage. Not to mention, of course, the impact on human lives.

    FEMA has done much to counteract the impact of these properties on people and Government. The implementation of a repetitive loss strategy, including the identification of the 10,000 most egregious cases, and frankly, the enforcement in a pre-disaster setting of National Flood Insurance building standards. These building standards alone save us as much as $1 billion annually.

    We have also developed very effective tools in a post-disaster environment to acquire, elevate or relocate these properties. But we do that really in partnership with State and local government. They are an integral part of how we operate.

    We know that these tools work, and we also know that they are cost effective. But the job is immense, as has been indicated here earlier this morning. We have paid out in excess of $900 million in claims for these 10,000 properties, and frankly, while they continue to drain our resources, we can never achieve the vision that we jointly hold of a self-supporting National Flood Insurance Program that is the cornerstone of the Federal response to flooding.
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    Just as an anecdote, in Houston, as was indicated earlier, we are moving ahead more forcefully and more aggressively than we ever have. We have just announced a buyout of 200 properties in Friendswood, Texas. Of those 200, 122 are in the repetitive loss family. So we can make some progress. But I have to say that the job is so overwhelming that really we can't do it without your help.

    So we are grateful for your time and your efforts and your support, and Howard and I stand ready to answer your questions. Thank you, Madam Chairwoman.

    Chairwoman ROUKEMA. I thank you.

    And now second we have Mr. Czerwinski. Mr. Czerwinski is the Director for Housing at the GAO, U.S. General Accounting Office. And Mr. Czerwinski, I understand that you have been with the GAO for approximately 21 years, and so you must be able to give us some perspective over time as to how we've effectively been dealing with the Flood Insurance Program. And I believe you've had a direct connection with that program since 1999 and have your experience.

    But I would appreciate it if you would give us the benefit of that experience and help us with your assistant, Mr. Bob Procaccini and help us understand in context repetitive loss strategies. And maybe you can help us with the reference to what the previous speaker has said about building standards. I don't know if that's part of your testimony or not. Mr. Czerwinski.

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    Mr. CZERWINSKI. Thank you, Madam Chairwoman. I very much appreciate the kind comments. And perhaps the toughest part of our hearing today is going to be trying to pronounce Bob's and my names.


    Mr. CZERWINSKI. We had the opportunity to testify before this subcommittee in the last session of Congress, so we would like to commend you for revisiting what we consider to be a very important issue. And you just heard Members Baker, Blumenauer, Bentsen and Bereuter, as well as FEMA talk about some proposals for curbing repetitive losses.

    We agree that repetitive losses are an important issue and we back the principles behind those proposals. What I would like to do first, though, is take a step back and provide a broader perspective in the Flood Insurance Program. There are three issues I would like to address today. First is the soundness of the fund. Second is repetitive losses, specifically some of the proposals we heard about, and third is some of the implementation issues, such as building standards, that these proposals raise.

    The Flood Insurance Program is not actuarially sound, and this is by design. As the chart on your left shows, this program has suffered losses of up to $600 million in a given year. This is primarily because, as Mr. Bentsen mentioned, there had been a large number of properties that were grandfathered into the program, and many of these properties are substandard. These properties, which are substandard, represent about 30 percent of the portfolio, and as such, there is an $800 million subsidy that goes to them. These grandfathered properties pay about twice the normal premium, but that premium is still only about one-third of what is actually needed to cover the costs.
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    The question is if we were to raise the premiums, could those owners pay the higher premium? Would they pay, and what will we do if they don't? These questions also apply to repetitive losses. Repetitive losses comprise about 1 to 2 percent of the portfolio, yet they represent about 38 percent of the claims—a $200 million annual loss to the Federal Insurance Program. So you can see why we agree with the proposals. And targeting repetitive loss is essential for the subcommittee to consider.

    The proposals we talked about today essentially have two parts. I consider them to be a carrot and a stick. The carrot is mitigation. And mitigation, simply put, is getting the properties out of harm's way. You may either want to move the property off the floodplain or elevate it above the flood level.

    The stick is, if properties are not mitigated, then you raise the premiums so that they cover the costs. But what if the people with higher premiums can't or won't pay? Do we have the will, do we have the discipline, is it appropriate for us to deny any types of assistance? This raises several implementation issues.

    Mitigation is neither simple nor cheap nor quick. At the funding levels for the proposals we've heard today it would take about 25 to 50 years to mitigate all repetitive loss properties. As such, that places a premium on having the worst properties mitigated first. This makes it very important that we have the information needed to do so. Essentially, you want to identify the worst properties. You also want to determine who is in them. Because who is in them affects their ability to pay.

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    FEMA is taking the first steps toward gathering this information, but there's still a long way to go. So if the carrot fails, what about the stick. Typically, repetitive loss properties belong to the poorest homeowners. So it is a legitimate question as to whether they can pay the higher premiums or not. If they don't, can we deny them disaster assistance, and will we do that?

    The 1994 Act gives us an indication. That Act contains a provision that would deny disaster assistance to those who did not get required flood insurance. We've had a number of floods since 1994. There have been a large number, as we know, of homeowners who haven't had the required insurance, yet I don't know of any examples of us denying assistance to them.

    What this points out is that flood insurance is not separate from the rest of the disaster assistance framework. It also means that repetitive losses by themselves cannot correct all the flood insurance challenges. But repetitive losses is certainly a good place to start. Taken together with repetitive losses, if we address such structural problems as those properties that were grandfathered in at subsidized rates, we will go a long way toward reducing the problems faced on a financial level by the Flood Insurance Program. It will also help us make disaster costs more manageable.

    That concludes my statement, Madam Chairwoman. I would be glad to respond to any questions that you or the subcommittee Members may have.

    Chairwoman ROUKEMA. Thank you. Thank you very much.

    And now we have our final panelist is Rebecca Quinn. Ms. Quinn is President of R.C. Quinn Consulting Incorporated, which is a specialized program that deals with floodplain management and mitigation. I guess she has been a volunteer for many years and has put her volunteer experience into dealing specifically with floodplain management and has had extensive experience in Maryland, as I understand it.
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    Thank you very much. And Ms. Quinn, we're ready to hear you.


    Ms. QUINN. Thank you, Madam Chairwoman. I certainly have a challenge to rise to since my colleagues here all finished under 5 minutes.

    As you indicated, I am the volunteer legislative officer for the Association of State Floodplain Managers. Including our 14 chapters, we represent over 4,500 State and local officials and other professionals engaged in all aspects of floodplain management and hazard mitigation.

    I'll just jump right into it. We believe that there are some fundamental premises that any strategy to deal with repetitive losses should address. The details are in our written statement. I'll touch on six elements quickly.

    As other witnesses have indicated, a strategy must be considered cost containment for the NFIP. This is not an entitlement program, it's not an enrichment program, it is a cost containment for the current policyholders and all future policyholders.

    A program to mitigate less than 1 percent of the insured properties could save millions of policyholders hundreds of millions of dollars each year if the rates don't have to increase to continue to cover repetitive losses. Plus, more people will actually choose to buy flood insurance if the cost of insurance becomes more in line with their perception of risk.
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    The repetitive loss strategy should address cost-effective projects that are in the best interests of the NFIP. These are not arbitrary terms. They are defined. FEMA has some rather extraordinary tests one has to go through to determine whether a project is cost beneficial.

    We also think it's important to realize that not all repetitive loss properties will fall into the group targeted for mitigation, especially those that get low-level, low dollar value damage. In those cases, we believe the best protection is continued purchase of flood insurance. It provides financial protection, although not property protection.

    People who buy flood insurance don't usually qualify for various forms of Federal disaster assistance, including subsidized loans, nor do they usually claim the casualty loss deduction on their Federal income taxes. Because the repetitive loss strategy will ultimately save tax dollars, we believe it is appropriate to be supported by new general funds.

    A strategy must encourage local planning for comprehensive, community-based solutions. Mandating only acquisition or projects that only deal with repetitive losses is too narrow.

    We support focusing on projects that primarily address repetitive losses, but let's not cut the community out of the planning cycle. When you increase funding for projects, we urge a commensurate increase in funding for planning and technical assistance.

    Existing insurance-based mechanisms need to be used effectively. The NFIP is, of course, an insurance program. Most flood insurance policies include coverage called Increased Cost of Compliance—ICC—that, in certain qualifying circumstances, helps to pay for mitigation using premium dollars.
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    We know FEMA is doing several things to make significant progress to make the ICC mechanism work more effectively, and we believe it is time for FEMA to exercise some authority granted to it in 1994 to allow the director to focus this mechanism on repetitive loss properties. If there are obstacles to implementation, we would urge that the subcommittee request a report so that you can determine what resolution might be appropriate.

    Canceling flood insurance on certain repetitive loss properties is short-sighted. We have serious concerns with that approach and would much rather see an increase in premiums to actuarial rates if an owner declines a reasonable offer.

    The subcommittee asked for several other topics to be addressed. One is the effectiveness of the NFIP. Where do I start? Our members definitely believe the NFIP is an effective program. No program is ever perfect. But clearly, without it, we would have more homes built flat on the ground rather than elevated to the current building standards.

    We look forward to a comprehensive evaluation of the program that FEMA will be initiating shortly.

    The current Flood Mitigation Assistance Program we believe is effective, although somewhat hampered by limited funding that is distributed to all States. Sometimes, because of the funding limitation, some of the quantities are rather small to deal with, but it is an important program and does foster local planning.

    Mitigation of repetitive loss properties can be accomplished under existing authorities with some modifications, and we do support some elements of H.R. 1428, particularly the addition of new funds and the focus on repetitive losses.
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    I would like to end with a comment about flood hazard maps, a critical component of an effective repetitive loss strategy. The best mitigation is to ''build it right'' the first time. You asked for an additional comment on the building standards. The floodplain used for regulatory purposes is the 1 percent annual chance, commonly known as the 100-year. It is not all flooding. If we build to the minimum standard required, then in the long run, it is a cost effective construction standard.

    But we do need to recognize that most flood maps only reflect current conditions, or, in fact, a large percentage of them are 15 to 30 years old. Good maps are important for mitigation projects, as well. If you're going to elevate a home, you need to know that the elevation you're raising the house to is the proper elevation. So we do urge support for the Administration's map modernization program which does identify a significant funding need over the next 6 to 7 years.

    I look forward to any questions you may have.

    Chairwoman ROUKEMA. All right. Thank you. I'm going to limit my own time hopefully. But I'll tell you, I haven't been clear about what you have stated.

    Let me ask whether it's Mr. Shea or Mr. Czerwinski who wants to answer first. We talked about the building standards, and Ms. Quinn has referenced that, and we should have firmer building standards. But given the present circumstances, why can we not be actuarially sound and make that our goal? I didn't get the feeling that Mr. Shea agreed with that. Maybe I'm wrong. And Mr. Czerwinski indicated that it's by design that it's not actuarially sound? Can you help us deal with that, and if we can't—because I think that is an absolute standard for myself. Would the two of you please comment further on that?
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    Mr. SHEA. Let me begin, if I can, Madam Chairwoman, and then I'm going to ask my colleague here, Mr. Leikin, to also address this issue. But the fact of the matter is, when the Congress passed the National Flood Insurance Act, it did not envision a program which would be actuarially sound. In other words, they always envisioned a program which would be required to provide subsidies to certain types of construction. Those are buildings that were built over the last 20 or 30 years that may have been built prior to the implementation of our flood mapping program or to the implementation of building——

    Chairwoman ROUKEMA. You haven't done that component of it?

    Mr. SHEA. Right.

    Chairwoman ROUKEMA. All right. Continue.

    Mr. SHEA. Let me turn it over to my colleague, Mr. Leikin.

    Chairwoman ROUKEMA. All right. Yes, Mr. Leikin.

    Mr. LEIKIN. As Mr. Shea just mentioned, the program was implemented as really a three-pronged effort. There is risk identification to let people know what the risk zones are and how they can build to avoid losses. It was a floodplain management program to effect better construction than had occurred prior to the program through lack of knowledge of the risk, and also to provide insurance.

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    We provide insurance really two basic ways. For structures that were built prior to the implementation of the National Flood Insurance Program, insurance was, in fact, made available at less-than-full-risk premiums. This was a tradeoff for communities joining the program.

    Chairwoman ROUKEMA. Excuse me, Mr. Leikin, I'm sorry. I think we understand the past history. I'm trying to focus now on the future and how we get to reaching the future, whether it's actuarially sound, what the building standards are, and how we, in my mind, correct the mistakes or the growing mistakes, the growing body. We didn't realize, I don't believe we realized how large this problem was becoming until recent years. So I want to focus on what we do, and I think we should have the nerve or the desire or the intensity to raise the premiums to the point of where we may have to deny assistance otherwise.

    Mr. Czerwinski, please.

    Mr. CZERWINSKI. Madam Chairwoman, I think there are three parts to the question you ask. The first one is for newer properties, we want to definitely, as you point out, enforce building standards and sound location. Now there's a lot of properties that are already out there. We can't enforce building standards on the properties that are out there or change the location except through mitigation. And that's where mitigation comes into call. You move the property to a safer location, or you change the standard of the property by elevating it above floodplain.

    Also, as you point out, properties that aren't mitigated bear a higher risk. Therefore, that calls for a higher premium. That becomes an issue of our discipline to enforce that, especially in the case of low-income homeowners. There also may be some type of program you might want to set up to assist those who can't afford higher premiums, but that's a separate issue.
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    The third part is how we set the rates right now, which is based on historical experience. It does not include a component for reserves. If there is a particularly catastrophic year, the program will go into the red, so we would need to set premiums also with reserves.

    So, it's a matter of new building standards, dealing with the buildings that already are substandard, and building in adequate reserves for the program.

    Chairwoman ROUKEMA. Thank you. My time is just about up, and I'm going to yield to my colleague, Mr. Bereuter, because he can take my time as well as his own, because he is the primary sponsor of the most outstanding bill that we have on the table here.

    Mr. BEREUTER. Thank you very much, Madam Chairwoman. Thank you very much for the testimony, gentlemen. Mr. Czerwinski, in the GAO report it indicates that currently Administration officials estimate total premiums income from unsubsidized policyholders is currently about $500 million less than it would be if the rates had been actuarially based and participation had remained the same.

    And then looking at the chart that shows the money coming in and money going out of the NFIP, Mr. Baker referenced that perhaps it was his handout, should I draw the conclusion—I'll let any of you respond to this—that many premium payers across the country are subsidizing others that are not paying actuarially sound rates, and that by making up this perhaps $500 million difference, they are also, by paying the higher rate, not contributing to the reserves that you mentioned are not being accumulated for the catastrophic events. Isn't cross-subsidization a significant burden on many taxpayers and many premium payers around the country that really shouldn't be paying as high a premiums as they are?
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    Mr. LEIKIN. May I respond to that please? There are two pieces of the program. New construction is charged premiums that are actuarially sound, and they're based on the long-term expectations of the losses.

    The shortfall that you refer to, the $500 million, in fact, it's somewhat larger today. Our recent estimates would place that at $780 million. That shortfall is attributed to the older construction, the so-called ''pre-FIRM'' construction. Pre-FIRM policyholders are paying substantial premiums, an average of $610 per year, but they're inadequate for that risk for these older properties, not having been built to the program standards.

    Mr. BEREUTER. Would you say that's true across the whole country?

    Mr. LEIKIN. For those older properties, it's true that they're all paying approximately 35 to 40 percent of what their true full risk premiums should be.

    There's no charge built into the new construction to subsidize those properties. We have, in fact, a premium shortfall. And the impact of that premium shortfall is that the program will go into borrowing more often. It impedes our ability to build up the reserves that Mr. Czerwinski mentioned, and it impedes our ability to repay borrowing. It's that shortfall that we can make great inroads in by addressing these most egregious properties that are these so-called repetitive loss properties. Of that shortfall, $200 million essentially is going to very few properties per year. That represents—well, even a smaller subset of that, the 10,000 that we would like to particularly target, represent approximately 15 to 20 percent of the premiums that the rest of the pre-FIRM policyholders are paying just to cover those properties.
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    So, there is certainly within that class of older structures, a fair amount of this subsidy, cross-subsidization to those who are having the most losses.

    Mr. BEREUTER. Thank you very much. The bells are ringing. I'll ask just one more question, but it's a very basic one, and it's for you, Mr. Shea, or perhaps Mr. Leikin. What is FEMA looking for in repetitive loss legislation?

    Mr. SHEA. Thank you, Mr. Bereuter. One thing I should note for the record initially is that both bills that are being considered by this subcommittee right now do contain additional resources. We think that would be clearly necessary in order to address this problem.

    Second, we would appreciate flexibility in being able to determine the composition of repetitive loss properties.

    Third, mitigation offers are to be made only when we know that funding is available. The offers should not be automatic based on a loss occurrence.

    Fourth, we would use the existing mitigation program, that is, the Flood Mitigation Assistance Program, as the vehicle to carry this out.

    Fifth, some limited non-cost-shared mitigation grant capability would be critical for us to have in order to target what we would think of as orphaned properties, where the community itself or the State would not particularly be interested in providing the cost share match for that.
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    Sixth, we need flexibility in defining the target group of properties. We need broad definition in the statutes, and we can refine that through regulation.

    Seventh, we think it is preferable that if the mitigation offer is refused to go to full actuarial rates rather than some other more onerous measure.

    Eighth, FEMA should not at any time really take ownership of properties. Our strength, the strength of our program, is built on our relationship with State and local governments, and that's where that should take place.

    Let me observe as well if I can, for just one second, that both bills have laudable features to them. But we believe that the Bereuter-Blumenauer bill contains most of these features that we're looking for in terms of trying to administer this program.

    Mr. BEREUTER. Thank you, Madam Chairwoman. Thank you, Mr. Shea.

    Chairwoman ROUKEMA. Oh, I'm sorry. We have two votes on the floor, so I think we're going to have to recess for a period of 20 minutes at least. So if our panelists will be patient, we will return in approximately 20 minutes for continuing questions, and we will continue with Mrs. Kelly when we return.


    Chairwoman ROUKEMA. If the panel will take their seats, let's get started again with Congresswoman Kelly.
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    All right. We appreciate it. I am sorry 5 minutes later than I thought we'd be in returning.

    Congresswoman Kelly.

    Mrs. KELLY. Thank you, very much, Madam Chairwoman.

    Mr. Shea, I'm going to cut right to the chase on the mitigation situation, because I think mitigation offers a great opportunity.

    Just how much does FEMA need to be adequately funded for mitigation opportunities?

    Mr. SHEA. Well, Congresswoman Kelly, the bills provide somewhere between $100-$120 million annually. We think that would be necessary for a 4- to 5-year period in order to fully address all of the ten thousand most egregious cases.

    Mrs. KELLY. So you believe that the bill has enough money in it to adequately address all of the mitigation that you feel is necessary?

    Mr. SHEA. Yes. When you take these bills in combination with the other tools Congress and the Executive Branch have, we believe the answer is yes.

    There is also the Hazard Mitigation Grant program, which is obviously driven by disasters but does provide some opportunity, as well, and that averages around $250 million a year. So the combination of resources really is going to get us there.
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    The importance of these bills, however, is that they are specific and targeted toward the area that we're trying to go after, and so they provide us the flexibility we need in terms of administering a program to address them.

    Mrs. KELLY. I want to go on. There are a couple of things.

    During Hurricane Floyd, I learned a lot from some really wonderful FEMA people who came into my area. We were really heavily devastated. They came in and they taught me a lot of things. I think they taught a number of other people in the area what FEMA can and can't do and it raised my awareness of the need for education.

    I am wondering about what you have been doing to amplify, and what you see we need to do to amplify people's awareness of flood insurance, its availability, how it works for.

    Mr. SHEA. If I can, Congresswoman Kelly, I'll start on that question, then ask my colleague, Mr. Leikin also to fill in a little bit.

    In general, one of the things that we've done recently, through Director Joe Allbaugh, is we have realigned, and we have now brought mitigation and insurance together in one house. That was a major step forward for us.

    Part of that reorganization was recognizing the importance of educating everybody at all levels of Government and the population at large about what needs to be done in this area.
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    In many respects, my belief is that we're somewhat like environmental awareness was about 30 years ago. Thirty years ago, I didn't have much of an understanding of tin cans, but now my daughters teach me the importance of recycling is just the normal course of business. So we hope at some point in history, that we will be able to imbue a lot of the American public with that kind of understanding of risks in areas that they are living in, and how they can combat them.

    The fact of the matter is, and I'm sure sensitive to this, when we understand the risks that we face, we can do something about them. That gives us control over our own lives and it's a very nice position to be in.

    We also think that some of the other initiatives that the Agency's undertaken over time have been very beneficial. Our previous work in Project Impact, Joe Allbaugh's interest in supporting that and moving it to the next level, as you know, we are examining that, but that was a wonderful mechanism to educate people in general. And I think we are going to be able to build on the success of that initiative.

    Mrs. KELLY. Thank you very much.

    The only other thing I wanted to ask you very quickly about is whether or not you feel that we have adequate mapping. I'm beginning to believe that we need to readdress the whole issue of mapping and remapping.

    For instance, there are people in my area, because as you know we live in a semi-mountainous area, the people who live on the mountain tops, because they are classified on maps as living in floodplains, are having to pick up the insurance, when I don't think you live on a mountain top and there's no possibility that your house is going to be flooded, I'm not quite sure why they should be assessed this, and perhaps you could address that for me.
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    Mr. SHEA. Yes. I mean certainly there are cases like where the maps show individuals being in the floodplain that are so clearly outside, and of course we have processes to deal with that, administrative processes to deal with that. Generally speaking, the maps that we have in this country from a flood standpoint are really egregiously out of date and I think we're all aware of that.

    We've talked about our map modernization program and we are, we believe, beginning to make some progress in that area, but again I think funding is a major consideration in terms of an ability to bring our mapping in this area and all over the country up to a point where it becomes a real useful tool on a daily basis.

    Mrs. KELLY. Madam Chairwoman, I would like to ask one follow-up question here. And that is whether or not there are any plans for cost-sharing with other agencies who would use the new maps?

    Mr. SHEA. Yes, Congresswoman Kelly. We are investigating mapping across the entire Federal spectrum, and we are looking at the possibility of new technologies maybe playing a role in this. There are some exciting developments in that area. I think we need to investigate them, assess them, and make sure that we're comfortable, and they'll bring us to the level of information that we all need to have to work with.

    But it's really a constant effort on our part to reach out to the U.S. Geological Survey and some of the other mapping agencies in the Federal Government, to make sure we and they are in lock-step. Of course, we also have mapping going on or mapping capability going on through satellite imagery and we're working in that arena as well.
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    Mrs. KELLY. Thank you very much.

    Thank you, Madam Chairwoman.

    Chairwoman ROUKEMA. Thank you, Congresswoman. I did appreciate your question on cost-sharing and that does open up a very intelligent component of this discussion that we should all be paying some attention to.

    I'm not going to take any more time with this panel. We do have to get on to the third panel. But I would throw out to you a question that I have that if you choose to put in writing an answer to it for me directly, and I guess that's because I come from a State like New Jersey where zoning is very much a State and local prerogative, and I guess that is true across the country.

    But I'm deeply concerned that local zoning and State zoning ordinance have not dealt intelligently or responsibly with this question. Why do we permit such, you know, and recommit to such flagrant violations of sensible zoning in the floodplain.

    And if you could please give me some advice and counsel on that subject, and how we can deal with it, because after all, they are pushing up to the Federal level and other people, the cost, and the cost sharing for their own irresponsible actions.

    And that's like putting a tax on all the rest of us rather than taxing those that have been responsible for the problem. So if you could give me some advice and counsel on that aspect of the question, I'd appreciate it. But we certainly appreciate your attendance here today and your patience, and I can guarantee you that all of this information in your testimony will be quickly distributed to the Members of the subcommittee.
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    Mr. SHEA. Thank you again for your interest and support.

    Chairwoman ROUKEMA. Hopefully we can get some action quickly.

    Mr. SHEA. We would appreciate it.

    Chairwoman ROUKEMA. If the next panel, Panel 3, will come forward please.


    Chairwoman ROUKEMA. All right, thank you. Thank you very much. I'm very pleased to welcome here today one of New Jersey's own, Mr. Tim Richards, who is President of the New Jersey Association of Realtors, and he has been active in realty functions for many years and has received recognition all over the State, particularly in Cape May, identified as the realtor of the year. Mr. Richards, I believe, can give us a perspective from the realtor's point of view on this subject, and I hope my statement just previously made to the previous panel about the indicting local zoning ordinances, perhaps you would like to counter that inference, or at least give your own perspective, Mr. Richards. You don't have to be limited by that question of mine. But you know the legislation that's before us, please give us your evaluation.

    Thank you.

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    Mr. RICHARDS. Thank you for those kind remarks, Madam Chairwoman. Thank you for the opportunity to present the views of the National Association of Realtors on H.R. 1428, the Two Strikes You're Out of the Taxpayers' Pocket Act, and H.R. 1551, the Repetitive Flood Loss Reduction Act.

    I'm Timothy Richards, a realtor from Ocean City, New Jersey, and the current President of the New Jersey Association of Realtors.

    I own a full service residential real estate company and have been a real estate professional for many years. I wish to thank Chairwoman Marge Roukema and Ranking Member Barney Frank for holding a hearing on an issue that is of great concern to the realtors.

    I would also like to thank Representatives Doug Bereuter, Earl Blumenauer, and Ken Bentsen for introducing legislation that would reform the Nation's current repetitive loss policy.

    It is often said, and I agree, that realtors don't sell homes, we sell communities. The 760,000 members of the National Association of Realtors are concerned and active members of our communities. When a flood strikes, our members are on the front lines to help our neighbors put back their lives.

    Realtors care about flood insurance issues for a number of reasons. For realtors who sell houses in a floodplain, the cost of flood insurance is a critical part of the transaction. For low or middle income purchasers, it may even determine whether or not they can purchase the home.
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    For repetitive loss properties, realtors have a keen interest in having the appropriate information on the flood losses for disclosure purposes, making sure that flood insurance is accessible for those properties and keeping the costs of the premium as low as possible.

    I would like to briefly discuss three issues with you today. First, the importance of the National Flood Insurance Program in protecting our homes and communities; second, NAR's perspectives on the concept of repetitive loss; and finally the issue that ties many of these matters together-the floodplain maps developed by the Federal Emergency Management Agency [FEMA] and how to update and modernize them.

    The National Flood Insurance Program currently operated by FEMA partners with 19,000 communities nationwide and holds four million policies and provides approximately $5 billion in property loss coverage.

    In my home State of New Jersey, some 546 communities of a total of 567 communities, partners with FEMA and there are over 175,000 policies in force that provide over $239 million in property loss coverage.

    As realtors, we benefit from this program because it allows people to buy homes that are safe from flooding through flood mitigation activities taken by the participating community, and further protects that investment by providing access to affordable flood insurance that would otherwise be unavailable on the open market.

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    The strength of the National Flood Insurance Program in my State has allowed many people of all incomes to own a piece of the American dream. Unfortunately, owning a home in a floodplain can sometimes be a nightmare. This occurs when a property is subject to multiple floods and must dip into the National Flood Insurance Program more than once.

    Currently, 45,000 properties nationwide have incurred two or more losses over a 10-year period. These properties cost the flood insurance program over $200 million annually. The top 10,000 structures alone cost the program over $80 million annually.

    In New Jersey, over 5000 properties are considered repetitive loss properties with total payments of over $174 million. These multiple loss properties inflict serious economic harm to the flood insurance program by driving up the premiums for all policyholders and by allowing the entire system to rest upon an unsustainable actuarial foundation. These properties are not paying a premium that adequately reflects the risks they incur by residing in a floodplain.

    NAR believes that the repetitive loss issue must be resolved and the flood insurance program be placed on firmer financial ground. However, we do not agree with the Administration's proposal to terminate flood insurance coverage for repetitive loss properties. By terminating a property's participation in the flood insurance program, it would be difficult for the owner to find affordable flood insurance on the open market. This draconian measure would result in a significant decrease in the value of the property and wipe out any previous investment the owner may have in that property.

    NAR supports an approach to the repetitive loss issue that has three components. First the property is kept in the NFIP with access to flood insurance. Second, incentives to participate in flood mitigation measures or accept a buyout at fair market value or higher for the worst repetitive loss properties; and third, if both the buyout or the offer of mitigation is refused, the owner will be required to pay the highest premiums allowable.
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    This win/win approach allows the owner to stay in the property while paying a premium that reflects the risk of living in the floodplain. This approach will also reduce the Federal disaster assistance over long term by getting the worst repetitive loss properties either properly mitigated or bought out by FEMA.

    A comprehensive reform of the current repetitive loss property must also reflect three additional issues that are of importance to realtors. First, some properties may experience repetitive losses as a result of upstream or downstream development that occurred after the properties were purchased or constructed. Some exception should be made for floods that were caused due to development activities.

    Second, once a buyout has been completed, NAR has concerns about the use and ownership of the acquired floodplain property. We would encourage flexibility in determining how these properties are being used and maintained so that they do not become eyesores in the community and decrease the value of adjacent properties.

    Finally, NAR would encourage the use of local appraisers and others who have knowledge of the local real estate market in determining fair market value for buyouts.

    In addition to FEMA's proposal to the repetitive loss issue, NAR also has concerns regarding their proposal to increase flood insurance premiums on second homes and vacation homes. We would be troubled if these homes were denied access to flood insurance as well.

    The last issue I want to discuss is the issue of FEMA's Flood Insurance Rate Maps, the well-known and much maligned ''floodplain maps.'' Accurate floodplain maps are crucial during a real estate transaction in determining whether or not a property is in a floodplain, which in turn determines whether or not the owner will require flood insurance. NAR is concerned that sufficient budgetary resources are not being identified for FEMA to improve these maps, although we are pleased at the recent action of the House Appropriations Committee to provide FEMA with an additional $50 million to improve these maps. NAR supports all full funding for modernization of the Nation's flood hazard mapping program.
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    I would like to thank you for allowing the National Association of Realtors to comment on these critical flood insurance issues and repetitive loss challenges. We encourage the Members of this subcommittee to fashion a workable, bipartisan approach to resolving these issues, and we stand ready to work with you to get an equitable and cost effective law passed that would financially strengthen the National Flood Insurance Program and further protect all of our citizens from the ravages of flooding.

    And I thank you very much.

    Chairwoman ROUKEMA. I thank you. I was generous with your time, but I hope that we'll have time before the next vote for everyone to be heard on this panel.

    Mr. Fletcher.

    Mr. WILLEY. Willey.

    Chairwoman ROUKEMA. Willey, all right, thank you. Mr. Willey has been in the insurance business in North Carolina for many years since 1974. He's a member of the Board of Directors of the North Carolina Insurance Underwriting Association and the North Carolina Joint Underwriting Association.

    Certainly he has extensive experience in this area, and we look forward to your advice and counsel.

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    Mr. WILLEY. Thank you, Chairperson Roukema and Members of the subcommittee.

    My name is Fletcher Willey, and I'm pleased to have the opportunity this afternoon to give you the views of the Independent Insurance Agents of America on the National Flood Insurance Program. I am the Chairman of the Flood Insurance Task Force of the IIAA.

    Let me begin by thanking Chairwoman Roukema, along with Chairman Baker, Chairman Bereuter, and Congressman Bentsen, along with Congressman Blumenauer for taking a lead on this very important issue.

    I want to clearly state that IIAA supports the NFIP. The NFIP provides an important service to people and places that have been hit by a natural disaster. The private insurance industry has been almost entirely unwilling to underwrite flood insurance because of the catastrophic nature of these disasters.

    Therefore, the NFIP is virtually the only way for people to protect themselves against the loss of their home or business by flooding. The NFIP has saved disaster assistance money and provided a reliable system of payments for people whose properties have suffered flood damage. We want this program to continue and we hope it will get stronger.

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    Our members, independent insurance agents, play a vital role in the delivery system for flood insurance. This system operates well and does not need revision. IIAA has not taken a position on these two bills yet. It is clear, however, that reforms in the program are necessary—I was referring to the delivery system, Chairwoman—necessary to address operating losses to make the NFIP actuarilly sound.

    We support the intent of these bills and believe that introducing them is a step in the right direction. The GAO has pointed out that cumulative operating losses of the program totaled $1.56 billion from 1993 through 1998.

    According to the GAO, multiple loss properties account for $200 million in claims per year and about 36 percent of all claims paid on an historical basis. We support the NFIP and we hope we will be able to work with this subcommittee as you evaluate the different proposals for reform to meet the fiscal goals of the program with the least disruption in the people's lives as possible.

    Our members have significant experience with the NFIP and with the people who will be directly affected by reform: the flood insurance policyholders.

    In fact, this is not just a professional matter for me. I live on Roanoke Island on the Outer Banks of North Carolina, and many of my neighbors suffered through the flooding of Floyd. So I have a degree of personal experience and personal investment in this issue.

    What I would like to do this morning is to describe for you the five principles that IIAA believe to be essential to this needed reform.
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    First, strengthen building regulations. These regulations require communities to ensure that any new construction in the floodplain is built above elevation.

    Second, any substantial improvement of existing structures is built with similar safeguards. Experience with the program demonstrates that building regulations work. In fact, only four percent of repetitive loss properties were built after 1974. In fact, damages to structures built to the current elevation standards are 40 percent less per claim than damages to older structures.

    Second, increase compliance with the mandatory purchase requirements. FEMA has found that fewer than 25 percent of the buildings in some of the areas with mandatory purchase requirement are actually covered by flood insurance.

    Third, the NFIP should have additional funding to provide resources for buyouts and mitigation grants. Buyouts allow residents to escape the cycle of damage and repair and damage and repair and the repetitive losses that we've heard discussed today. We should avoid creating new problems by pushing residents out of their homes without sufficient resources to relocate.

    As long as the program is sensitive to the potential dangers of buyouts, buyouts can be a beneficial tool to improve the financial state of the NFIP. Former FEMA Director James Lee Witt has estimated that there will be a two dollar return on every dollar spent on buyouts of repetitive loss properties.

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    Experience with building standards has shown that many owners can elevate their homes and effectively mitigate their flood risk. In some cases, modifying the current property is less expensive and almost as effective as buyout. This option can help to preserve communities to the fullest extent possible. NFIP needs the authority and the resources to help property owners improve their properties before additional losses are incurred.

    Fourth, we must stop abuse of the program through multiple claims. Some individuals have bought property in flood zones in order to take advantage of repeat payments from the NFIP. While this is a small subset, we must take action to have them out of the program or paying actuarial rates.

    We need to also recognize that all repeat claimants are not abusing the system. There are some people who bought property without full knowledge of the flood exposure, and we must help those people.

    Fifth and last, one of the best ways to avoid future problems with the NFIP is to give people full information about flood risk. As I said before, many people originally bought their properties without knowledge of the risk of flood. Therefore, reform of the NFIP needs to include mandatory disclosures of the flood claim history of the property so that buyers can make an informed choice on their purchases and so that they can properly value the home.

    To make mandatory disclosure effective, we should create an accessible electronic database of flood losses.

    Thank you for giving me the opportunity to express the views of the Independent Insurance Agents of America. We look forward to working with the subcommittee on this issue, and I'll be happy to take any questions that you might have.
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    Chairwoman ROUKEMA. Thank you very much.

    And now our final witness is Mr. David Conrad, who is a water resources specialist for the National Wildlife Federation. Certainly we all know that Federation as one of the largest conservation organizations in the country.

    And it is my understanding—well, of course, you've had extensive experience over the years—but it is my understanding that you have recently been the author of a report called ''Higher Ground.'' A report, and there we have it and you're going to insert that into the record, I'm sure, a report on voluntary buyouts in the Nation's floodplains, a common ground solution serving people at risk, taxpayers and the environment.

    And I hope we are able to have some communication here between yourself and the insurance and real estate people that we have.

    Mr. Conrad.


    Mr. CONRAD. Thank you, Madam Chair. I do think from what we have just heard that we do have a lot of common ground on the issue of how to deal or work on repetitive losses as a problem and the National Flood Insurance Program.
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    Again, my name is David Conrad. I am water resources specialists for the National Wildlife Federation, and I am very pleased to present the Federation's views on the National Flood Insurance Program.

    I also wish again to thank Representatives Bereuter, Blumenauer, and Bentsen for continuing their efforts to focus the Nation's attention on these problems, and thank Madam Chairwoman for holding these hearings.

    Our written testimony includes quite a bit of material that came from our report that was issued in July of 1998, and I think I will dispense with going through a lot of the statistics that we have there, because I think a number of the facts that we found have been reflected in previous testimony.

    But I would want to comment on maybe one issue that I heard in the last panel to start with that we found also that the National Flood Insurance Program was not actuarially sound. That has been verified by other witnesses. But I think an important thing to focus on was that while it may have been originally recognized that that was the case when the program was originally designed, I think it was always intended that it be moving toward actuarial soundness over time.

    And that we found that progress has been greatly hampered by the way we have implemented the program. So that's really what the issue of this legislation is partly about, trying to get back to the progress toward an actuarially sound approach for the program.

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    I would like to focus I think the rest of my attention in this short time on the value of non-structural approaches and that are represented by the ideas behind these bills, and also our thoughts about the bills.

    Madam Chairwoman, primarily since the 1993 midwest flood, FEMA reports that approximately 27,000 properties have been voluntarily purchased and removed from the Nation's floodplains and another 2800 damaged properties have been elevated or flood-proofed largely after flood disasters. Hundreds of communities across the Nation have begun to utilize voluntary buyouts as a cost effective alternative means of reducing flood damages, and often, at the same time, restoring environmental health to streams and coast lines through establishment of open space, greenways, bike ways, parks, buffer zones, wildlife habitat areas and other such uses.

    But in light of the NFIP's repetitive loss history, there is a strong need for additional funding that can be used for pre-disaster mitigation efforts that can save enormous private and public sums in the long run.

    The National Wildlife Federation urges strong support for particularly H.R. 1428, because we believe the legislation provides the best framework for FEMA and NFIP participating communities to address a full range of problems associated with repetitive losses.

    H.R. 1428 clearly addresses the need for increased funding for pre-disaster repetitive loss mitigation. The bill would fully engage States and communities in developing and implementing hazard mitigation plans, particularly by using the existing Flood Mitigation Assistance Program approach, and it is critical for the financial health and safety of the Flood Insurance Fund that owners of repetitive loss properties would pay rates that reflect the true risk associated with their properties especially if reasonable mitigation plans are offered and are refused.
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    We might add the following suggestions though that maybe could possibly improve this legislation. We would urge that the director and communities be given sufficient flexibility to address not only or not just repetitive loss structures, but also other structures or properties close by in the vicinity that are flood prone. This is the idea that flexibility may be needed to help communities establish cohesive plans for wide use of floodplains and sensible public infrastructure development.

    We also would urge that new funds be made available for planning hazard mitigation projects. We would urge that mechanisms be established to assure that reasonable hazard mitigation offers would not cause severe hardship for owners and occupants of modest means particularly.

    Successful hazard mitigation should include plans for adequate and affordable relocation opportunities for any residents involved.

    As a means of addressing those concerns, we urge that FEMA be directed, to the maximum extent practicable, to coordinate efforts with Federal housing, disaster relief, and natural resource management agencies to help State and local agencies in developing mitigation plans.

    We would also say while we fully agree with the objectives of H.R. 1551, it would require development of a wholly new program that we don't believe is actually necessary, given the success of Section 1366. The proposal of the Administration to cut off availability of flood insurance to repetitive loss properties after one additional claim would address the enormous financial strain these properties represent for the NFIP, but this approach would not guarantee that there would be action to remove high risk properties from harm's way.
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    We do support, however, the Administration's proposal to phaseout subsidized flood insurance rates for certain vacation homes and rental properties. Such subsidies can ultimately result in high cost to taxpayers, and much greater effort should be made to establish this program on an actuarially sound basis.

    The last thing I would like to mention is just the map modernization program also. We strongly support the FEMA efforts to modernize the flood insurance maps. It is clear that many of these maps are reaching an antiquated age and no longer really reflect the risk involved. And, because the maps constitute basic planning documents for the Nation's urban and rural areas, they need to be accurate and updated.

    They are of such fundamental importance to community development that it would be entirely justifiable, we think, to finance their updating with considerable general taxpayer funds and with appropriate fees and other contributions.

    We strongly urge the subcommittee to identify and support approaches to provide the necessary funds for map modernization.

    Again, on behalf of the National Wildlife Federation, I wish to thank the Chairwoman and other Members of the subcommittee for the opportunity to present our views, and would be happy to respond to your questions.

    Thank you.

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    Chairwoman ROUKEMA. Thank you.

    I don't really know where to or how to question on this. The complexity of it has now been clearly identified here between what this panel is saying and what the previous panel has said except for, well, even Mr. Conrad, actually you have quite an overlay with both the insurance people and the realtors.

    But I've got to say, and I think Mr. Bereuter, before he returned here, I had made the point that there have to be incentives for State and locals to have proper zoning, and I firmly believe that.

    And I've got to say that we've got to recognize that the cost of flood insurance—and I'm very sensitive to the realtors, I'm very sensitive—but I cannot continue to let the subsidies, what we're doing to absorb the costs of these things, the cost of the insurance for people continuing in the floodplain, and with their multiple numbers of repetitive losses, we cannot continue to let them drive up the cost for all, and that to me is unsustainable.

    I don't want to terminate flood insurance, I'm not yet at the point, unless Mr. Bereuter can convince me otherwise, to have FEMA absorb the costs of these buyouts, of all these buyouts. I don't know how we're going to deal with that.

    But I do again, coming from New Jersey, where I have great belief in local zoning, that the local zoners are going to have to have the responsibility and recognize that the Federal Government should not be continuing to subsidize and sustain it.
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    I don't know if anyone wants to come back to me on that before I turn it over to Mr. Bereuter for his questioning. I don't have the whole answer, but I'm trying to integrate.

    Yes, Mr. Conrad.

    Mr. CONRAD. I see. Yes. Well, when we did our major study, and we spent a lot of hours thinking—days, weeks, months—thinking about these problems, I think our view is that the programs for buyouts and elevation, floodproofing, and so forth, probably should be considered a temporary or sort of transition program to deal particularly with existing problems that a lot of communities have.

    But I think behind that needs to be a renewed focus on working with communities to properly grow and to take full awareness of the risks of locating in high hazard areas, such as floodplains, so that's my answer to your question, if that helps.

    In other words, this shouldn't be a permanent situation.

    Chairwoman ROUKEMA. You don't want to zone out?

    Mr. CONRAD. I think that most communities should be using zoning to identify or to locate homes and businesses away from high hazard areas, yes. And that is really part of the Flood Insurance Program.

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    There were two parts, the provision of insurance and the guiding development away from harmful or——

    Chairwoman ROUKEMA. But that hasn't really been in action.

    Mr. CONRAD. I don't think we've had enough attention put to that.

    Chairwoman ROUKEMA. That's what I'm saying.

    Anyone else?

    Yes, Mr. Richards, my friend from New Jersey.

    Mr. RICHARDS. Concerning the zoning issue, in some parts of the country, I think it could be done, and I think it could be done very successfully.

    In the very dense population areas, and New Jersey is certainly considered one of those where the horse is already out of the barn, and the majority of the land is already owned by someone, a rezoning that dramatically devalues a property can very easily be construed as a taking. And without some type of compensation, either from local zoning board, local community, Federal Government, State government, whatever, it could be a very, very difficult situation.

    So I don't know that zoning will solve the problem overnight.

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    Chairwoman ROUKEMA. Excuse me, but this is done regularly across the country and certainly in New Jersey, this is done on a regular basis. Is there any legislation, whether it's for flood control or whatever, about rezoning and compensation? I don't think so, or is there?

    Mr. RICHARDS. There are issues that surround that, yes.

    Chairwoman ROUKEMA. No, there are issues that surround it, but there's no legislation that requires compensation, is there?

    Mr. RICHARDS. Not that I'm aware of.

    Chairwoman ROUKEMA. For flooding or for other reasons, rezoning for other reasons, not that I was aware of either.

    All right, I'm sorry, I interrupted you. Do you want to add something?

    Mr. RICHARDS. There was other point made about the taxpayers subsidizing all flood insurance and to me, there may be a perception that flood insurance is something for more expensive housing. And I think one of the areas that we've got to be ever aware of are the gentlemen from Louisiana and Texas, West Virginia, and areas that, you know, are not necessarily real expensive homes, but yet these are valuable family estates that have got to be maintained.

    Chairwoman ROUKEMA. Someone else on the panel had made that point as well.
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    All right, thank you.

    Mr. Bereuter.

    Mr. BEREUTER. Thank you very much, Madam Chairwoman.

    Gentlemen, I'm sorry I missed the first part of your presentations. I've been reading your testimony and I think I've caught up with those elements of testimony that you presented orally here or in writing.

    And I must say, I thank you for a very positive set of testimony. Mr. Richards, I think in particular, if I might say so, the National Association of Realtors, in your testimony has been a very positive approach in looking for a win/win situation to protect your own customers.

    The items that you go through, on page five, for example, are principles and concerns that are exactly those that I share. And so I appreciate the very positive and constructive tone of your testimony.

    Mr. Conrad, I thank you for your support for the legislation offered by Mr. Blumenauer and myself. I certainly share your concerns about the need for a map modernization program that's accelerated. Many communities are waiting so long for the kind of modernization of their floodplain zoning areas, and in the meantime things have changed, and we provided some flood control protection which should exempt property owners from being required to have flood insurance, and that just is not reflected in many cases.
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    In other cases unfortunately the floodplain has expanded, and we need to have an indication of what really the flood hazards are in a community.

    I followed Chairwoman Roukema's comments about zoning, and having written a lot of zoning ordinance myself, before I was elected to Congress, I'm certainly very much supportive of the need to avoid flood losses through the zoning ordinance. Generally, it is problem avoidance, and we're stuck, as one of you pointed out, with areas that have many, many nonconforming uses. Most of those repetitive loss structures are nonconforming uses that were built many years ago, especially in the older cities in this country, and so it's a big problem.

    Earlier on, we had comments about Project Impact, which is, as I understand it, is not proposed for funding under fiscal year 2001 budget recommendation of the Administration. I must say I think that's a mistake. I know Project Impact has had a good impact within my own State and it's been used as a model for other communities to emulate, and so I think it's a big and very positive step forward.

    One of you gentlemen, I think Mr. Willey, it was you, who cited former FEMA Director James Lee Witt as suggesting that for every two dollars spent in buyout or mitigation, every one dollar spent provides two dollars in return. And I suspect that's true, and I think that's something that needs to be emphasized.

    When you referred in your testimony, Mr. Willey, to the athletic director of your local high school, that of course brings it down to a personal kind of note. And I think what we're looking for is a program to accelerate the mitigation and buyout circumstances that give him an alternative.
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    Right now, he would, as you suggest, be happy to have a solution, but, in fact, the Government is not there for a buyout program or a mitigation program. Though both Mr. Bentsen's and my bill attempts to deal with that by additional resources for FEMA for that purpose.

    Let me ask you a couple of general questions—well, not so general, specific questions perhaps with respect to a comparison of the Administration's approach, which is only identified through their budget proposal at this point and, for example, the bill that Congressman Blumenauer and I offered.

    Their definition of a repetitive loss structure would be properties with two or more losses of a thousand dollars in greater than a 10-year period, whereas ours are property at two or more NFIP claims have been paid.

    So the burden is, the definition for the Administration is much more comprehensive in its impact, it seems to me. And then they lose their policy after the first flood.

    Do you want to make a comment about the Bentsen, the Bereuter/Blumenauer versus the Administration's definitions on repetitive loss.

    I saw your hand, Mr. Willey. I'm not sure if you want to address that or not, but I'd welcome you.

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    Mr. WILLEY. Yes, sir. Thank you for that opportunity. I think that's a crucial question, sir. People that have been hit by Floyd, which was supposedly a 1,000-year storm, and then one other $100 claim, or $250 claim, are, quote, ''out of the program,'' by one standard.

    We would support a standard that would be broader than that. By that I mean perhaps four claims of at least $1,000 dollars or more, or the standard that would be based on the value of the building.

    We believe that it is important to keep people in the program, because once they're out of the Federal flood program, they have no incentive to build at proper elevations.

    We would like to see as many people included in the National Flood Insurance Program an early strikeout, if you will. An early cancellation of the citizen's availability to participate in the National Flood Insurance Program, we think could result in some areas that would go downhill quickly. We would like to see people striving for elevation and striving for mitigation, but just to kick them out of the program would be tough to enforce.

    Mr. BEREUTER. Do you think it's fair——

    May I continue? I know I'm beyond my time here.

    Chairwoman ROUKEMA. Yes, please another minute or two. Yes, two more minutes.
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    Mr. BEREUTER. Thank you very much.

    Is it fair in your judgment, I would ask the two of you that represent the business-related associations, for example, for actuarial rates to be paid by a property owner that has had two NFIP claims paid if, in fact, they have turned down mitigation or buyout assistance?

    Mr. RICHARDS. If I understand your question, that they would have a much higher premium to pay if they elected not to do one of the other two things. That was a recommendation that we had made in our remarks believing that we are providing something for that homeowner. If they are kicked out of the program, we also have a mortgaging issue, which could create some economic difficulty down the line.

    Mr. BEREUTER. I don't see how we can kick them out of the program if we're not willing to buy them out. You know they have no alternative. In some cases, this is a desperate situation, as Ms. Carson raised the question, for example, well what's the real value of that home if we do get to a buyout stage.

    Mr. WILLEY. We would support the actuarial rate availability and the fair determination of an actuarial rate from an insurance perspective. We have to support actuarial soundness, otherwise the system doesn't work.

    I would point out very quickly, if I may, Madam Chairwoman, that we recognize that many, many, I think 96 percent or so of the repetitive loss properties are those properties that were built before we knew anything about the science of elevations.
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    These were places, my athletic director example, the house was built before 1972. Other houses surrounding that house are properly elevated and haven't suffered that same flood recurrence. So there is a great deal of value in the elevation requirements of the program, and offers for mitigation or buyout, and then an actuarial rate are the way to go.

    Mr. BEREUTER. And actually the newer homes may have caused additional flooding for the original home that was built pre-FIRM?

    Mr. WILLEY. I've seen that happen, yes, sir, but not in this case.

    Mr. BEREUTER. Yes. I wonder if you have any comments about the desirability of the 125 percent figure that Mr. Bentsen uses? He's indicating property in three or more flood related damages with a cumulative cost of repairs equal or greater to 125 percent of the structure's fair market value would be considered a repetitive loss structure.

    Mr. WILLEY. Yes, sir, I've looked at that. And I think it's important to determine whether or not we're talking about 125 percent of the market value after it's flooded three times, or before it had flooded three times.

    Mr. BEREUTER. We got a response, by the way, from behind us when we were testifying in response to Ms. Carson's questions, and I might say it here for the record. FEMA said that they go back to the pre-flood valuation. However, if there are several floods, they don't go back to the first flood, they go back to the pre-most recent flood basis. So that's the calculation they use on the buyouts.
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    Anybody else have a comment regarding 125 percent element?

    Mr. RICHARDS. I do it find difficult to put a blanket on any type of valuation, because community after community is completely different, different market areas, different localities, all carry different ways of establishing value, and I really don't know that you can put a blanket on that type of situation.

    Mr. BEREUTER. Thanks to all of you, including you, Mr. Conrad, and Madam Chairwoman, I want to express my sincere appreciation for the fact that you've held this hearing and that we've had excellent panels of witnesses.

    Thank you very much.

    Chairwoman ROUKEMA. Well I thank you for your cooperation and your leadership, not only cooperation, but it's your leadership that really motivated the subcommittee to have this hearing and hopefully we can all move together and get something expedited for consideration in this Congress.

    I would also point out, as I think I made reference to in my opening statement, the fact that Mr. Dale Shipley, the Executive Director of the Ohio Emergency Management Agency was not able to be with us today. He was to have served on this panel, and I would ask unanimous consent to insert into the record his prepared statement for this hearing. The irony of it is that he is not here because he is attending to needed flooding concerns in Ohio that have been afflicting southern Ohio, so he's out there taking care of flooding problems in Ohio. Perhaps he'll come back and put in an addendum to his testimony based on his experience this week. I thank you very much.
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    Mr. BEREUTER. Madam Chairwoman.

    Chairwoman ROUKEMA. Yes.

    Mr. BEREUTER. I would ask unanimous consent to include the appendix prepared by staff, a Comparison of Repetitive Loss Property Proposals.

    Chairwoman ROUKEMA. Yes, that will be included. Thank you again and we look forward to working with you and hoping that we can expedite something for this Congress.

    [Whereupon, at 1:20 p.m., the hearing was adjourned.]