Senator MOSELEY-BRAUN. No, I'll reserve any comments, so that I can hear the witnesses.

Senator KERRY. Thank you.

Let's go, if we can, ink the following order. We'll start with Beth Millemann.

Who are the substitutes? We've got a few substitutes here.

Mr. KEHOE. I'm Cary Kehoe, substituting for Christophe Tulou. Senator KERRY. Say that again. Cary?

Mr. KEHOE. Kehoe.

Senator KERRY. Kehoe. All right. And you're substituting for Christophe Tulou? All right.

Ms. MCCAULEY. Mr. Chairman?

Senator KERRY. Yes?

Ms. MCCAULEY. Peter Fallon of the North Beach Civic Association, Vero Beach, asked me to cover his testimony when I give mine.

Senator KERRY. All right. Then let's go.

And you are?

Ms. MCCAULEY. Kathleen McCauley from Marshfield, MA. Senator KERRY. Kathleen McCauley from the right State. OK. [Laughter.]

Senator KERRY. Let's go in this order if we can, then. We'll start with Beth Millemann and then Kathleen, after that, Rebecca Quinn, Cary Kehoe, Pat Campbell-White, Tommy Thompson, and that should-did I leave anybody out? That includes everybody. Thank you.

Oh, Tommy, you have a plane you have to catch?

Mr. THOMPSON. Yes, sir.

Senator KERRY. Why don't you lead off?

Mr. THOMPSON. OK, thank you. I appreciate that understanding. Senator MOSELEY-BRAUN. If you have to leave at 11:30 a.m., I can wrap up.

Senator KERRY. Oh, could you? Well, that's very kind. Senator Moseley-Braun has very kindly offered to give us a little more time on the back end, after 11:30, so that gives us a little more time for questions, which I appreciate enormously. But it doesn't let you off your obligations.

[Laughter.]

Senator KERRY. All right.

STATEMENT OF THOMAS N. "TOMMY" THOMPSON, FIRST VICE PRESIDENT, NATIONAL ASSOCIATION OF HOME BUILDERS, WASHINGTON, DC

Mr. THOMPSON. Mr. Chairman, Members of the committee, my name is Tommy Thompson. I'm a homebuilder from Owensboro, KY, and I'm presently serving as president-elect of the National Association of Home Builders, which is an association that represents some 165,000 firms engaged in all aspects of homebuilding and land development. I want to thank you for giving NAHB the opportunity once again to appear before you to comment on legislation to reform the National Flood Insurance Program, Senate Bill 1405, the National Flood Insurance Reform Act of 1993.

I'm a second generation Kentucky builder and president of Thompson Homes, Inc. My company builds primarily single-family homes and, as such, I'm very familiar with the day-to-day activities and workings of the National Flood Insurance Program. As homebuilders, we can play a critical role in maintaining the solvency of the NFIP through hazard mitigation efforts.

NAHB has always supported the Federal Emergency Management Agency 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 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 so-called post-FIRM, works relatively well. Flood Insurance Rate Maps were first issued in 1975, so that any subsequent construction conforms to the 100year flood elevation requirements.

Let me also acknowledge that homebuilders 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 that will be sustained, thereby reducing insurance claims and associated repair expenses.

I want to thank Senator Kerry and Senator D'Amato for their efforts to accommodate and balance the various interests that converge on this issue.

Senate Bill 1405 is evolving toward greater recognition of State and local governments control over their resources and land use decisions, while safeguarding the Federal Government's interest in the NFIP solvency. Unlike previous bills, S. 1405 poses no real constitutional problems under the Fifth Amendment's takings clause because it no longer contains an express prohibition on construction and development of an individual's private property.

Senate Bill 1405 also appears to recognize alternative forms of viable erosion mitigation techniques, and provides the flexibility for State and local governments to determine how they manage their coastlines.

NAHB applauds Senator Kerry and other Members of the Banking Committee for their efforts to address the financial soundness of the NFIP. NAHB supports the goals of NFIP to provide affordable flood insurance for property subject to flood hazards.

However, a Congressional research 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 the thrust of title II, which seeks to increase the participation in the fund through strengthened lender compliance provisions, as we were talking about in the previous panel.

Title II of Senate Bill 1405 also should contain provisions ensuring that maps are accurate, that appeals are expeditiously proc

essed, and that those individuals not living in flooded areas not be subject to flood insurance purchasing requirements.

I've just returned from our fall board of directors' meeting with some of the provisions of S. 1405 were debated. Specifically, NAHB opposes that part of Senate Bill 1405 which denies flood insurance through the NFIP in erosion hazard areas.

Section 406 denies coverage within a 30-year erosion zone for any new structure or additions to existing structures if that addition makes the structure not readily movable. It also prohibits flood insurance coverage in between the 30- and 60-year erosion zones for any non-residential structure, residential structure that is not readily movable or additions to existing structures which renders the structure not readily movable.

NAHB opposes this section of the bill for a variety of reasons, not the least of which is what would no doubt have a chilling impact on coastal construction. Beyond that, however, we believe the committee should be concerned about its broader impact on communities and the NFIP. First, section 406 contradicts a very public policy purpose, driving the flood insurance program and title II, which is to increase participation in the NFIP.

And, Senator, as you know, post-FIRM construction would be constructed and covered at actuarial rates, which would have no impact on the fund, I think as the GAO testified earlier. Also we're concerned because section 406, with its varying policies on the type of structure eligible for coverage, coupled with the ever-changing erosion zone designation, will be a bureaucratic nightmare to administer.

For these reasons, NAHB argues that flood insurance should be available for structures in these zones, and the policy should be equitable, consistent with the policy goals, encouraging community participation in NFIP, and at the same time, would prevent or mitigate many adverse impact to a community's existing and potential tax base. This applies especially to those communities dependent upon revenues brought in by tourism and the seashore.

Also problematic from a homebuilders and homebuyers perspective is section 604(b) which calls upon FEMA to give special emphasis to provision of erosion hazard areas where that area experiences an increase in its erosion rate due to a storm or extraordinary event.

This provision ignores real life situations faced by builders who have projects that take several years to complete. While a builder would receive a permit to start construction, intending development to occur within permissible erosion zones, the FEMA remapping before completion of a project could change the zone in which a builder was developing.

So we believe this eventuality is further argument in favor of making flood insurance available through the NFIP for all new structures. Other portions of S. 1405 require clarification.

Section 301 establishes a community rating system to encourage communities participating in the NFIP to exceed the existing floodplain and erosion management measures in exchange for lower premiums. In effect, the title codifies existing practice wherein the Federal Insurance Administration allows the local and/or State government to determine its building practices and codes, provided

that those regulations exceeded the Federal Insurance Administration's standards. NAHB supports this provision in concept because it allows a community to decide how stringent its floodplain and erosion management measures might be.

Section 403 is also ambiguous. As currently written, 403 establishes a program for assistance for planning and carrying out State and local programs to ensure reduced flood and erosion risk. These provisions appear to complement 301 of title III, codifying the Community Rating System, by providing additional incentives to States and localities 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. NAHB believes the language should include erosion control measures, as identified by title I of Senate Bill 1405.

Again, Senator, NAHB believes a legislation approach should allow the State or local community to determine which approach it believes is best for its community. As a matter of public policy, States and local communities should be given the flexibility to determine which forms of mitigation control best suit their purposes. This general policy is consistent with the National Research Council's Report, entitled "Managing Coastal Erosion." This report has provided the foundation for much of which is contained within Senate Bill 1405, and NAHB believes the NRC's recommendations on this provision should be incorporated as well.

I appreciate the opportunity to speak before the committee, and stand ready to answer any good questions.

Senator KERRY. Let me just ask a couple of quick ones, since you have to run, and then we'll come back to the others, and I beg your indulgence on that.

First of all, I appreciate very much your suggestions and requests for point of clarification. I think those are legitimate clarification areas, and we can certainly respond to those. And I don't think our intent is different, so I don't see great difficulty in it.

The obvious one area of contention that I think really does remain still in this bill is this issue of the 30-year erosion provision on federally supported insurance. And I'm troubled again a little bit by your-first of all, I enormously appreciate the Home Builders' support this go around. That's a very important support and it certainly changes the dynamics of the entire approach on the legislation, and we are appreciative for that. But I'm finding it just difficult to understand. You mentioned this concept of sort of actuarial rates in terms of the risk within the 30-year erosion zone. Why would the private sector not undertake that risk? And if the private sector won't insure that risk, why should the Federal Government insure that risk?

Mr. THOMPSON. Well, Senator, it's a good question. I think, first of all, the private sector and particularly the building community is taking on the risk by, as I said, being more responsible for developing, researching, and implementing higher construction standards.

Senator KERRY. There's no risk to them in that. They charge the customer for the cost of whatever it is they're building. I mean they're not building altruistically. They're building for profit.

Mr. THOMPSON. Exactly.

Senator KERRY. OK. So whatever they're doing in terms of higher codes and higher standards, they're getting paid for it.

The issue is what happens afterwards when and if damage occurs. Now in a 30-year erosion zone, it's not if; it's when damage occurs. It's a known risk. And at the actuarial rate, the private sector is refusing to insure, or people simply can't afford it. You build a $250,000, $300,000 home on a 30-year actuarial rate, you're paying for the home three times. And so most people aren't going to do that.

Which is why the question is still begged: Why should the Federal taxpayer support insuring the building in a zone where presumably environmentally there are going to be serious questions about it, but also just on a risk basis there's serious questions about it.

Mr. THOMPSON. Well, I think obviously because of the fact that their building in an erosion zone that the possibility certainly of loss exists, but I think we have to look at the facts. If you go back and look at what has been the drain on the fund, it has not been the damage caused by coastal flooding. I think only about 3 percent of the losses, of the repetitive losses to the fund have come from flooding along coastal areas.

I think the vast majority of it has come from rivering damage that has been caused. And I think when you look at the fact that it's actuarially sound, that there is a certain assumption of risk there, and there could be also perhaps some co-insurance put in place with the private sector.

But I think what's more important is if you deny the right of a community to develop its coastline because of its dependence upon the tourism income from that development, its dependence upon the seashore income, its competition with other communities, you're really denying an inalienable right of those people to compete.

And I think again, the facts of the matter are that the losses, and the GAO even spoke earlier about the fact that if it's based on actuarial soundness, that the loss to the fund won't be any negligible at all.

Senator KERRY. I'm troubled by what you're saying. You just used the words, you're denying them the right to develop and the right to compete. You're not denying them the right. If they want to do, they can do it.

Mr. THOMPSON. But they're not having access to the insurance. They have to build at their own risk.

Senator KERRY. The question is should folks working hard in Chicago for an income and folks working hard in Boston for an income be supporting the risk that person is taking by building somewhere that most of them could never afford to build, or dream of living. I suppose they can dream of it, but they're not going to be able-you know, it's hard.

But the reality is, why should they be supporting that development? I mean, the marketplace, we're always being told around here, don't let Government meddle. We're always being told, let the marketplace work. Everybody keeps telling us, hey, folks, keep