The National Flood Insurance Reform Act of 1993, S. 1405, addresses needed initiatives in a positive and constructive manner. The Association is very pleased with the legislation and is convinced its passage will greatly improve efforts to address the flood hazards in the Nation.

Successful flood damage reduction in the United States requires consistent and coordinated efforts from all levels of government as well as the private sector. The Association of State Floodplain Managers believes that the Federal Government has accomplished a great deal by pursuing these partnerships. But the job is far from complete. We pledge our support and technical expertise to efforts to improve the NFIP.

STATEMENT OF CHRISTOPHE A. G. TULOU

SECRETARY, DEPARTMENT OF NATURAL RESOURCES AND ENVIRONMENTAL CONTROL STATE OF DELAWARE

Mr. Chairman and Members of the subcommittee, my name is Christophe Tulou, and I greatly appreciate the opportunity to testify before you.

I am testifying today as the Secretary of the Delaware Department of Natural Resources and Environmental Control on behalf of the Coastal States Organization.

Since 1970, the Coastal States Organization has represented the governors of the 35 coastal States, Commonwealths and Territories in coastal and marine affairs, providing a collective voice for expressing their needs and recommending national policy to better manage coastal resources.

We in Delaware can speak with some credibility on the subject of flood insurance, and particularly on the issues of coastal development, erosion, and the need for a strong Federal mitigation effort. I will focus my comments on these issues as they are addressed by the legislation before you-S. 1405. Delaware, like all other States along the Atlantic and Gulf coasts, has long-term experience with erosion; it has been going on for thousands of years. For most of those years, the landward progression of the sea was no problem. Only in relatively recent times, when mankind decided to place buildings and other structures in the way of this onslaught, did the sea's intrusion create a problem.

Before the late 1800s, coastal dwellers were pretty savvy. They recognized the risks of coastal living, and either built on safe ground or built shacks in hazardous areas which could be replaced when the inevitable disaster struck. More recently, our desire to reach out and touch the sea has overwhelmed this sense of self-protection, and construction in many areas has proceeded without adequate respect for this erosion hazard.

We in Delaware, and the country at large, are now suffering from these decisions: since 1915, Delaware has spent millions to help devastated coastal communities recover from storms and the effects of on-going and relentless erosion. Nationwide, we have spent billions through a variety of disaster assistance and beach protection programs: Corps of Engineers projects; flood insurance subsidies; casualty loss insurance coverage; 2nd home mortgage deductions; infrastructure assistance the list goes on and on. The upshot is that States and the Federal Government have said clearly that irresponsible coastal development is not only sanctioned, it is encouraged.

What have we gotten for this investment? We have millions of happy (for the moment) coastal inhabitants who are enjoying their close proximity to the water; we have a variety of industries who have done good business in high hazard areas; we have also nearly depleted our flood insurance fund, as many of us at this panel have long predicted; and we have placed the American taxpayer in peril of having to bail out the program when the next great disaster comes.

I would note that the issue is not just the coasts, as the long, mid-western summer has demonstrated. I would also point out that we, in coastal America, have been extremely lucky over the past 20 or so years. Storm frequencies have been low, but the National Hurricane Center predicts that the cycle is changing, and that we can expect a larger number of more powerful storms in the coming years. We are meeting that challenge with very little in the kitty. The National Flood Insurance Fund is not well despite the greatest piece of luck that has befallen the program since its inception in 1968-Hurricane Andrew's near miss of New Orleans last year and the surprisingly low level of flood damage in Florida.

I guess all this commentary is a long way of saying that we need this legislation. For those who would criticize it in its current form, I can only say: "We've come a long way, baby!"

Several years ago, I sat down with representatives of the lending community and their regulators to ask a simple question. Why was it that only 15 percent of structures in flood-prone areas carried flood insurance at a time when Federal law explicitly required its purchase before a loan could be obtained from a Federally insured or regulated lender? The question still stands, and the lender compliance provisions of the bill before you are at least a step in the right direction to get more floodprone properties insured.

For too long, the National Flood Insurance Program has focused on the vertical dimensions of the flood threat. The response was to raise the structure out of harm's way. What the program has not realized is that elevation is not terribly satisfactory in an eroding area. The risk of land being slipped out from under structures must be recognized. For the moment, neither the NFIP's rates nor its programs adequately address the erosion hazard. As a result, owners of structures in high-hazard, water's-edge properties are benefitting from a sizable Federal subsidy, now paying on the order of $1,000 per year when the actuarial rate could be somewhere in the vicinity of $10,000 per year. I am not sure that proponents of actuarial rates in coastal high-hazard zones are thinking in $10,000-or-more-per-year terms when they advocate an actuarial approach to the erosion problem.

S. 1405 takes a much more advisable approach to the erosion-zone insurance issue: keep the Federal Government out. As one of my esteemed colleagues on this panel has said in the past, the Federal Government probably would not consider insuring properties on the lip of a volcano; why sanction it for structures that we know could very well be in the drink within 30, or even 60, years?

Of course, one could argue that not all shorelines are eroding. This is true. That is why we also need identification of erosion zones as mandated by this legislation. What about coastal communities that restore their beaches, as we try to do in Delaware? Obviously, our efforts to renourish beaches does temporarily halt the advancing seas, and may be economically justified in some instances. But, such activities cost a lot of money, and require a commitment that must continue until we-humanity-are no more. We could easily spend $2 million per year in Delaware for beach restoration activities. We don't get that much, and what we do get is coming harder every year. As you distinguished Members of the subcommittee well know, when it comes to appropriations, there is no such thing as a long-term commitment. Perhaps more important than protecting the Federal Treasury and its contributors from a needless liability, the insurance prohibition in erosion zones sends an important message to those who would live at the water's edge. It is a risky enterprise. The goal of this entire exercise should be to inspire economically sound decisions whether to build in erosion-prone areas. This legislation will not in any way abridge a property owner's right to build where he or she wishes; it simply says that the Federal Government will not be an economic party to the decision, at least to the extent of insuring it. This places the burden for the risky decision where it belongs with the property owner. Of course, Federal subsidies remain, including tax breaks for casualty losses and others I have already mentioned, but the prohibition is a step in the right direction.

There is precedent for such action in the form of the Coastal Barrier Resources Act (CBRA), which goes much further in its prohibition of Federal investments on so-called undeveloped barriers. Not only is flood insurance not available in these areas, but other Federal investment in infrastructure and other inducements to development are also barred. Interestingly, the impact of these prohibitions on property values—at least in Delaware-have been negligible according to realtors. Flood insurance is available, underwritten by Lloyd's of London at rates higher than NFIP rates. Some property owners in CBRA units have chosen to self-insure.

Mitigation is another crucial element in an effective flood insurance program. Problem prevention is becoming a very politically correct concept nationwide. Pollution prevention in the environmental control arena has gained widespread acceptance, for good reason. It's good for the environment, and it's good for business. The old adage, "You can pay me now, or you can pay me later" still holds. There is no reason why the NFIP cannot reflect that kind of forethought. Granted, paying insureds for protective actions before disaster strikes is not part of the traditional insurance mindset. That is what is wrong with the traditional insurance mindset. Mitigation deserves to be a major focus of FEMA in the future.

A very small percentage of structures are responsible for an amazingly large share of NFIP claims. This situation must be addressed, and I think the mitigation program proposed in S. 1405 is a great step in the right direction. Structures subject to repetitive damages or which are subject to excessive damage should be moved, flood-proofed or otherwise appropriately managed, to the extent that it is technically and economically feasible to do so. I am pleased to see that the benefits of Upton

Jones-relocation or demolition of structures in imminent danger of collapse in erosion zones-are retained in this new mitigation program.

I also strongly support the incentives for voluntary actions under the Community Rating System (CRS) provisions of the bill. Through the combined CRS and mitigation initiatives proposed by this legislation, decisions about how best to avoid disaster are left where they belong-at the local level. The bill recognizes that many of our communities need financial and technical help to meet this challenge, and I applaud that effort.

In closing, I would like to reflect on the purpose underlying the NFIP: to prevent and reduce losses. The sponsors of the Act recognized that the benefits of the NFIP could extend far beyond the program's policyholder base. Unfortunately, fulfilling the NFIP's objective of loss reduction has become secondary to NFIP's function of providing insurance. The National Flood Insurance Reform Act of 1993-S. 1405represents a much-needed change in course back to the original intent behind the Act. On behalf of the Coastal States Organization and the State of Delaware, I strongly support the bill and urge its adoption by the Congress of the United States.

STATEMENT OF THE NATIONAL ASSOCIATION OF REALTORS®

INTRODUCTION

Thank you Mr. Chairman, for the opportunity to present my comments on behalf of the National Association of Realtors® (NAR) to the subcommittee this afternoon. My name is Pat Campbell-White. I am a Realtor from Rehoboth Beach, Delaware, and the 1993 Vice-Chairman of the Realtors® Public Policy Committee. I am also a past-Chairman of the NAR Environment Committee.

It was almost two years ago this week that this subcommittee held hearings on a prior version of Senator Kerry's flood insurance legislation. A lot of give-and-take has gone on over the past few years among the parties interested in the reauthorization of the National Flood Insurance Program (NFIP). However, we feel that this process has resulted in a far better final product than the one we started off with in 1991. As a result, I am happy to be able to announce to you that the National Association of Realtors® is ready to support the passage of S. 1405, the “National Flood Insurance Reform Act of 1993."

We would especially like to thank Senator Kerry for his willingness to listen and to address our concerns. His door has always been open to us and we certainly appreciate his assistance in reaching this compromise.

As with every compromise, each side must yield on some points. For example, we are still concerned, that no one at the Federal Emergency Management Agency (FEMA) can provide a reliable estimate as to the number of properties and communities that may be impacted by S. 1405. In addition, NAR would have preferred that flood insurance rates be more actuarially-based. In fact, we still feel a case could be made that the erosion zoning would not be needed if insurance rates were raised to truly reflect the risk. Such risk-based premiums could achieve the desired result without having to resort to unnecessary zoning restrictions. However, given the fact that S. 1405 does not restrict the rights of property owners to develop their land, we feel that the approach taken by Sen. Kerry is equitable, fair, and one which merits our Association's support.

S. 1405

NAR has had three major concerns with the previous versions of Federal flood insurance legislation. Foremost among them were the "no build" aspects of the 10-, 30-, and 60-year erosion setbacks. S. 1405 addresses these concerns by denying Federal flood insurance coverage for newly constructed residential structures within the 30-year zone; while allowing property owners the right to build at their own risk or to obtain private insurance. In addition, between the 30- and 60-year lines, Federal insurance would not be available for newly constructed non-movable residential structures, new additions that make existing structures non-movable and newly constructed commercial structures within the 60-year zone.

There have been many misconceptions about our Association's position on flood insurance. NAR has never argued that property owners have a "constitutional right" to Federally-backed flood insurance. All we ever asked was that property owners either have the right to develop their property, or in cases where the right to build was denied by government action, that they be compensated for the loss of use of their property. S. 1405 simply denies Federal flood insurance for clearly defined classes of properties in the 30- and 60-year zones; it does not prevent new structures

from being built. Nor does it place any restriction on property owners resorting to private insurance. This is a major change from the prior versions, and it is the main reason why our Association now feels that we can support S. 1405.

Our second major concern with the previous bills was that they allowed FEMA to designate entire communities as "erosion prone" without holding public hearings or giving affected property owners the right to public comment or an appeal of this decision. S. 1405 recognizes this shortcoming and it requires notice to affected property owners, public hearings in the affected local communities and an appeals process for property owners whose properties are designated as being within the mapped

erosion areas.

Our third major concern was the Federal Government not usurp the traditional rights of local communities and States with regard to zoning. The National Association of Realtors wholeheartedly feels that zoning is more effectively administered by individual States and localities and S. 1405 attempts to coordinate Federal and State activities to the greatest extent possible. States and localities often have historical and site specific data and S. 1405 requires that FEMA utilize existing State erosion data and to coordinate its erosion programs with State coastal management programs.

Finally, we are pleased that S. 1405 requires FEMA to remap erosion zones, at a minimum, once every five years, and to publish all revisions and changes every six months. Realtors® have a duty and responsibility to inform the public with respect to potential limitations on the use of their property. Regular, and accurate, notice should be provided to all landowners in high erosion and flood prone areas, both coastal and inland, as to the actuality and extent of erosion and flooding. This is especially true under S. 1405, since limits on insurance availability are predicated on the accurate delineation of the various erosion zones. S. 1405 allows communities to request remapping in special instances where new storms and weather patterns may have created new erosion areas or rendered old ones obsolete.

CONCLUSION

Mr. Chairman, again, thank you for the opportunity to present the views of the National Association of Realtors®. We are pleased that we could finally reach common ground with Senator Kerry on this important legislation and we, again, thank him for his efforts. I will be happy to respond to any questions you or the other committee members may have.

Π

103D CONGRESS

1ST SESSION

S. 1405

To strengthen the National Flood Insurance Program and to reduce risk to the national flood insurance fund by increasing compliance, providing incentives for community floodplain management, providing for mitigation assistance, and for other purposes.

IN THE SENATE OF THE UNITED STATES

AUGUST 6 (legislative day, JUNE 30), 1993

Mr. KERRY introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs

A BILL

To strengthen the National Flood Insurance Program and to reduce risk to the national flood insurance fund by increasing compliance, providing incentives for community floodplain management, providing for mitigation assistance, and for other purposes.

1

Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE AND TABLE OF CONTENTS.

4 (a) SHORT TITLE.-This Act may be cited as the

5 "National Flood Insurance Reform Act of 1993”.

6

(b) TABLE OF CONTENTS.-The table of contents for 7 this Act is as follows: