• Support termination of erosion-threaten structure programs like Upton-Jones. This is a liberalization of the NFIP coverage and is not considered insurance because it requires NFIP to pay claims in anticipation of losses.

Title V-Flood Insurance Task Force:

• Support establishment of Task Force.

Title VI-Miscellaneous Provisions:

• Support increase in maximum insurance coverage limits.

• Recommend that you require replacement cost coverages rather than limiting coverage to the amount outstanding on the mortgage. For a homeowner who has nearly paid off his or her loan and consequently has minimum flood coverage, he or she is woefully exposed when the flood does come.

• Support NFIP identification in mapping of flood areas around the country as an important tool in both mitigation efforts and public awareness, not to mention the issuance of insurance.

• Believe that the $25 Federal service fee, that the homeowner is required to pay in addition to the flood premium, should have more direct benefit back to the homeowner in such areas as making it very easy for the homeowner to determine whether or not their property is in a special flood hazard area.

• The FIA has expressed concern that efforts by many States and local governments to impose taxes and levies upon NFIP flood insurance premiums collected by WYO companies, beyond the premium tax which helps States regulate insurance company solvencies and license insurance agents and brokers, may eventually lead to Congressional action which pre-empts all State and local taxation, including the premium tax which funds a very vital service. We recommend specific language to exempt premiums collected for deposit in the National Flood Insurance Fund from all taxes except for the aforementioned premium tax.

In closing, I would once again like to refer to that part of the Bible, specifically the New Testament, Matthew 7:24 that Senator Kerry has drawn the parable about the house built upon the sand wherein it is also suggested that it is indeed a wiseman that builds his house upon a more solid foundation. Perhaps the subcommittee will see the wisdom of moving the NFIP on to a more solid foundation by leading the way towards passage of Senate Bill 1405. Mr. Chairman, that concludes my statement. I will be happy to address any questions which you or the other Members of the subcommittee may have.

STATEMENT OF THE NATIONAL ASSOCIATION OF HOME BUILDERS

My name is Thomas N. "Tommy" Thompson and I am a builder from Owensboro, Kentucky. I am currently serving as First Vice President of the National Association of Home Builders (NAHB), an association representing 165,000 firms engaged in all aspects of home building and land development. I am pleased to have the opportunity to appear before the Senate Banking Subcommittee on Housing and Urban Affairs, and to comment on S. 1405, the National Flood Insurance Reform Act of 1993.

I am a second generation builder and current President of Thompson Homes. My company builds approximately fifty single-family homes each year. The company is also involved in multifamily housing, seniors housing, land development, property management, and general contracting. As a Kentucky builder, I am also well acquainted with the workings of the National Flood Insurance Program.

I. THE NATIONAL FLOOD INSURANCE PROGRAM

NAHB applauds the sponsor(s) of S. 1405 for their efforts to address the financial soundness of the National Flood Insurance Program (NFIP). NAHB supports the goals of the NFIP to provide affordable flood insurance for property subject to flood hazards. However, a Congressional Research Service Study indicates that only 1.7 million of an estimated 11 million households in flood hazard areas have flood insurance. In light of this data, NAHB concurs with provisions in S. 1405 which seek to increase NFIP participation through strengthened lender compliance provisions.

Hazard mitigation also plays a critical role in maintaining the fund's solvency. NAHB supports the Federal Emergency Management Agency (FEMA) construction standards and practices for flood mitigation. These flood mitigation standards require the lowest habitable area of a structure to be at or above the 100-year flood elevation. Through the NFIP and the flood mitigation standards, builders are afforded a cost effective and technically feasible means of minimizing damage to structures caused by flooding at a price affordable to the housing consumer. The NFIP, as it relates to construction that has occurred after development of Flood Insurance Rate Maps, (or post-FIRM construction) works relatively well. Flood Insurance Rate Maps were first issued in 1975, so that any subsequent construction conforms to the 100-year flood elevation requirements.

Let me also acknowledge that home builders and the building community at large have a responsibility to continue developing better construction techniques for coastal development. We have learned a great deal at NAHB and use this information to educate our members. Obviously, the more we learn about building structures that can withstand severe wind and rain, the less damage will be sustained thereby reducing insurance claims and repair expenses.

II. PROPOSED REFORMS TO THE NATIONAL FLOOD INSURANCE PROGRAM S. 1405,
THE NATIONAL FLOOD INSURANCE REFORM ACT OF 1993

Before getting into specific provisions of S. 1405, we want to formally acknowledge and thank Senator John Kerry and Senator Alfonse D'Amato for their work on this legislation. NAHB has no formal policy on some of the new provisions in S. 1405, such as Sec. 406 in Title IV (NAHB expects to adopt policy on these issues during our Fall Board of Directors meeting September 9-13). However, S. 1405 no longer contains express prohibitions on coastal construction and therefore poses few, if any, of the constitutional "takings" issues under the Fifth Amendment, unlike its predecessors. This bill also represents a significant step towards preserving the traditional role of State and local government control over their resources, and land use decisions. We also believe S. 1405 appears to recognize alternative forms of viable erosion mitigation and provides the flexibility for State and local governments to determine how to manage their coastline as recommended by the National Research Council (NRC) report entitled Managing Coastal Erosion.

Title III-Ratings and Incentives for Community Floodplain Management Programs Section 301

Section 301 establishes a Community Rating System (CRS) to encourage communities participating in the NFIP to exceed the existing floodplain and erosion management measures in exchange for lower premiums. In effect, this title codifies existing practice wherein the Federal Insurance Administration (FIA) allows the local and/or State government to determine its building practices and codes, provided that those regulations exceed the Federal Insurance Administration's minimum standards. Sec. 301 expands this current practice to a community's erosion management practices as well. NAHB supports this provision in concept because it allows the community to decide how stringent its floodplain and erosion management measures might be. However we would want clarification that the full range of flood

and erosion management techniques would be eligible for credits under the Community Rating System as established by S. 1405.

Title IV-Mitigation of Flood and Erosion Risks

Section 403

Sec. 403 establishes a program for assistance for planning and carrying out State and local programs to reduce flood and erosion risk. This provision appears to complement Sec. 301 of Title III, codifying the Community Rating System, by providing additional incentives to States and localities (in the form of financial assistance) to take steps to control flood and erosion risk beyond the minimum NFIP requirements. Our comment here, similar to Title III, is that the full range of erosion mitigation options be available to States and local communities. S. 1405 does not explicitly include or exclude these options, it simply describes some activities for which States and communities may receive assistance including elevation, relocation and demolition. NAHB believes the language should include "erosion control measures," as defined in Title I (12) of S. 1405.

NAHB believes a legislative approach should allow the State or local entity to determine which approach it believes is best for the community. As a matter of public policy, State and local communities should be given the flexibility to determine which forms of mitigation control suit their purposes. Beach communities are aware of the importance of their beaches and often regulate their sand resources to protect property. Often, communities embark on massive campaigns to preserve this treasured resource. Various projects in coastal States demonstrate that structural and nonstructural measures can be employed with great success. Under proper management, coastal development can minimize the effects of coastal storms, be aesthetically appealing, environmentally safe, and reduce any financial cost to the general public. In fact, such development can be a positive benefit to a community, a source of property or sales tax revenue and an asset to the area's economic development. We urge that local and State governments be given flexibility to operate under the coastal erosion management program envisioned by S. 1405.

Section 406

Sec. 406 prohibits FEMA from making flood insurance available within the 30year erosion areas for any new structure or additions to existing structures if that addition makes the structure not "readily movable." Sec. 406 also prohibits flood insurance coverage in between the 30- and 60-year erosion zones for any nonresidential structure, residential structure that is not "readily movable" or additions to existing structures which renders the structure not "readily movable."

Unlike its legislative predecessors, Sec. 406 does not contain an outright prohibition on residential and commercial construction. Sec. 406, therefore, does not trigger the Fifth Amendment of the Constitution prohibiting a "taking" of property without just compensation. However, prohibiting flood insurance coverage will undeniably have a "chilling effect" on construction. NAHB is compelled to question this provision not only because of its impact on our industry. Equally important, Sec. 406, appears to contradict the very public policy purpose driving the NFIP, and Title II of S. 1405, which is to increase participation in the NFIP.

While NAHB has no formal policy on Sec. 406 at the time of this writing, but expects to prior to the presentation of our oral statement at the hearing, we would argue that flood insurance should be available for structures in these zones. This policy would be equitable, consistent with the policy goals of the NFIP and, at the same time, would prevent or mitigate any adverse impact to a community's existing and potential tax base especially those communities dependent on revenues brought in by tourism and their sea shore.

Sec. 406 makes reference to certain "readily movable" structures as eligible for insurance under this scheme. Title I, 102(a)(11) defines "readily movable structure" as "a small permanent structure of less than 5,000 square feet that is designed, sited, and built to accomplish relocation at a reasonable cost relative to other structures of the same size and construction and that has access of sufficient width and acceptable grade to permit such relocation." A literal reading does not indicate what the authors intend to be "readily movable." It is difficult to comment on this definition, but NAHB questions the reference to cost in this definition. Apparently, under S. 1405, the home owner would bear the cost of relocating a structure.

Title VI-Miscellaneous Provisions

Section 601

Sec. 601 raises the maximum flood insurance coverage available under the NFIP. NAHB agrees that current law provides inadequate insurance coverage to existing properties. We are curious as to the methodology by which these limits were estab

lished and question whether they should not be raised further to more accurately reflect the value of some of the properties insured.

Section 604(a)

Section 604(a) of S. 1405 also requires FEMA to assess the need to revise and update the flood insurance rate maps. States or communities may require FEMA to revise its flood insurance rate map if the State or local unit of government assumes 50 percent of the cost of the map revision. Currently, the expenses for map revisions are paid out of the fund but there is no guarantee FEMA will respond to a map revision request. NAHB agrees with the purpose of Sec. 604(a), but questions whether the associated costs to the community will serve as a disincentive to communities to request map revisions when the maps are in fact out of date.

Section 604(b)

Sec. 604(b) requires FEMA to identify and map all "erosion hazard areas" within five years of enactment of the legislation. First, it is unclear whether this provision applies to both riverine and coastal erosion hazard areas. Nowhere in the legislation is it apparent. Tidal waters in the United States encompass 88,633 statute miles. NAHB questions whether FEMA has the resources to mount this monumental undertaking with 208 full-time FIA employees. NAHB wonders whether it is realistic to expect FEMA to perform these additional tasks.

In addition, FEMA is directed to give mapping priority to areas that are at greatest risk from erosion and to map these erosion hazard areas within two years. Do FEMA or the sponsors of this legislation know at present the number and location of the communities slated for priority mapping under this section?

More problematic, from a builder's perspective, is that part of Sec. 604(b) which calls upon FEMA to give special consideration to revision of erosion hazard areas where that area recently experiences an increase in its erosion rate due to a storm or extraordinary event creating a change in the erosion rate. This provision ignores "real life" situations for builders who begin a project that may take three years to complete. While a builder would receive a permit for starting construction and intend development to take place within certain erosion zones, FEMA remapping before completion of a project could conceivably change the zone in which the builder was developing. In other words, a builder might in good faith begin construction where flood insurance protection is permissible and the zone could be reconfigured such that the subsequent construction is taking place where no flood insurance coverage would be permissible. Perhaps the authors of this legislation could reach agreement regarding the "grandfathering" of these projects or some alternative which would not place a builder and home buyer in such a situation. Also, if flood insurance were available within the erosion zones, this problem could be partially resolved.

CONCLUSION

Considering the multitude of interests and values as well as the technical, economic, and political dynamics which all weigh in to guide coastal development, NAHB believes that a sound program should require State and local participation in concert with the Federal Government. Furthermore, a sound program must move beyond the simple solution of building setbacks, but must include improved construction techniques, such as improved foundations, as well as beach improvements, such as properly designed and maintained seawalls, and nonstructural remedies, such as beach nourishment and vegetation efforts.

Before the legislation advances, we would like to work with the subcommittee and sponsors in the hopes of answering some of the questions raised here and incorporating these suggestions. We stand ready to assist you in any way we can.

STATEMENT OF BETH MILLEMANN

EXECUTIVE DIRECTOR, COAST ALLIANCE

Good afternoon. My name is Beth Millemann, and I am Executive Director of the Coast Alliance, a national environmental coalition that works to protect the resources of the Nation's four coasts: Atlantic, Pacific, Great Lakes and Gulf of Mexico. I greatly appreciate the opportunity to testify on S. 1405, the "National Flood Insurance Reform Act of 1993." My testimony today is presented on behalf of the Coast Alliance and 85 other State, regional and national conservation, fishing, labor and citizen organizations.

I would like to commend Chairman Sarbanes and the Members of the Subcommittee on Housing and Urban Affairs for holding today's hearing. S. 1405 presents a