are better built and are sited out of harm's way will withstand disasters better. This means less personal and financial hardship and less tragedy. This also means less paying out of disaster assistance dollars by Federal, State, and local governments to rebuild our communities.

Right after I became Director of FEMA, I visited the area of Florida struck by Hurricane Andrew. I saw a community in which homes were constructed to meet building codes and virtually every home remained intact through Andrew. A few short blocks away, another community was not so lucky.

The heroic efforts of the people in the Midwest to save their homes from the rising flood waters provided inspiration to all of us, but it also provides vivid evidence of the problems we face when we insist on challenging the forces of nature by siting and building practices.

The opportunity is at hand to significantly reduce the number of people at risk from flooding in the affected areas. The time has come to make the hard political choices, and to make the long-term investment in mitigation.

We must begin to make mitigation worthwhile at the State and local level. We must provide the leadership, the expertise, and the support for mitigation to Governments, the private sector, and the individuals.

We are taking a major step in this direction through the new organization I am proposing for FEMA which was announced as part of the administration's National Performance Review.

We are establishing at FEMA a Directorate for Mitigation which will combine the three primary mitigation programs in FEMA. These are the National Earthquake Program, the Mitigation Grant Program under our Disaster Relief Program, and the Flood Plain Management Program of the National Flood Insurance Program.

By taking this step, we will provide a focus for working with State and local governments that will allow us to take advantage of the opportunities for implementing risk-based multihazard mitigation programs.

Clearly the cornerstone of the mitigation directorate will be the Flood Plain Management Programs of the NFIP. NFIP is one of the most effective mitigation programs in the Federal Government. But I believe even more must be done.

Mr. Chairman, we are very pleased with the vast majority of the bill's provisions. However, we do have some concerns. We are painfully aware that, despite the NFIP's effort in educating agents and lenders, each year only about 20 percent of those nationwide who should have coverage have actually purchased it. In the recent flooding disaster in the Midwest, that number may be as low as 10 percent.

The bill seeks to improve the insurance policy base by strengthening the requirements on lenders and those Federal agencies that insure or place mortgages in flood hazard areas to require flood insurance when extending mortgage funding. We strongly support this effort.

Without a significant increase in the policy base, the current policyholders will have to pay for the additional mitigation proposed, which will raise the premiums in excess of $50 per policy.

The bill omissions which will result in less than full compliance with the mandatory purchase provisions: For example, I am concerned because there is no mention of refinancing of home loans, or any provisions for review of existing mortgage portfolios. This would mean that portfolios of existing loans, even under federally regulated lenders, would still be at risk. This could expose U.S. taxpayers to demands for disaster assistance in the future.

Improved compliance with mandatory purchase alone will not guarantee that everyone at risk will be covered by flood insurance. There is a large, growing segment of the mortgage market that is not regulated by the Federal Government. Combined with those who have paid off their mortgages, this means that many structures will be outside the mandatory purchase provisions.

With the outstanding support of the Small Business Administration, FEMA staff recently reviewed approximately 2,000 applications for SBA loans arising from the Midwest floods. We found that over half of all applicants whose homes were located in the floodplain did not have mortgages. Of those who did have mortgages, about half were covered by flood insurance.

This means that no matter how effective our compliance rules for regulated lenders become, we still have a lot of work to do to educate the people about the flood risk. We enthusiastically support the provisions for mitigation insurance.

As we speak, community officials and their constituents are searching for ways to remove substantially damaged structures from the recent flood. This addition to the flood insurance coverages provided under the standard policy is critical to the success of their efforts in the future.

We are also concerned about the provision that would deny insurance in identified erosion-hazard areas.

We believe that the strength of the NFIP has always been in the agreement between the participating communities and the Federal Government that communities would enforce sound land-use management in exchange for flood insurance.

Actuarial premiums charged in erosion areas, coupled with a stronger mandatory purchase provision will help discourage unwise development.

While insurance denial may seem to be the simplest way to discourage development in these environmentally sensitive areas, we question how effective this really is. It is time to answer this question. Therefore, we seek your support for a short-term study to be done by FEMA along with NOAA that will examine the impacts of the denial of insurance, the application of actuarial rates on the development of Coastal Erosion Zones in coastal areas, and the requirement to purchase flood insurance at actuarial rates in these areas. This study could also look at prudent land use management strategies.

In closing, Mr. Chairman, I would like to say that each year the National Flood Insurance Program saves over $500 billion because communities have adopted and enforced Flood Plain Management requirements.

A recent study shows that 78 percent of potential development is steered away from the floodplains simply because of the program's minimum standards, and this is a good start.

I want to work closely with this committee, and I see your support as we move forward together to rebuild FEMA, to strengthen the NFIP, and to mitigate the risks being faced by our families and businesses and our communities.

Mr. Chairman, I am sorry that I will not be here tomorrow, but I will have Don Collins here, head of our Flood Insurance Administration for FIA, to answer questions that you may need answered. Senator KERRY. Well thank you very much.

There are two areas of questions that arise out of that. What I would like to do is see if we can get Dr. Baker's testimony in, also, and then if you could stick around for a moment we will try to come back to you with some questions.

Dr. Baker.

STATEMENT OF DR. D. JAMES BAKER, UNDER SECRETARY FOR OCEANS AND ATMOSPHERE, NATIONAL OCEANIC AND ATMOSPHERIC ADMINISTRATION, U.S. DEPARTMENT OF COMMERCE, WASHINGTON, DC

Dr. BAKER. Thank you, Senator Kerry, other Members. I have a full statement for the record, and I will just briefly summarize that here.

Senator KERRY. Without objection, the full statement will be placed in the record.

Dr. BAKER. We believe that Senate Bill 1405 is a workable compromise that will yield significant improvements to the National Flood Insurance Program. We also believe the bill will provide a framework for a closer relationship between NOAA and the Federal Insurance Administration, and we strongly support it.

We support the Lender Compliance and other reforms designed to require property owners who are eligible for insurance coverage to purchase the coverage.

We support the authorization of the community rating system. We support the authorization of the increased cost of construction coverage as a rider to existing insurance policies.

We also support the requirements that the Federal Emergency Management Agency map erosion hazard areas, and that erosion risk information be disclosed at the time of purchase.

I would add that NOAA is prepared to assist FEMA as it develops a coastal erosion mapping program.

We also support the Erosion and Flood Hazard Mitigation Fund and the requirement that communities wishing to receive funds develop risk management plans.

With respect to the denial of new Federal flood insurance in Erosion Hazard Areas, I would like to say that we agree with FEMA that a joint study should be conducted of charging actuarial rates and requiring the purchase of insurance at those rates, as well as the impact of a prohibition on insurance before a prohibition is imposed in legislation.

While these provisions further the goal of preventing coastal disasters, NOAA believes that the bill should go farther to address the heart of the coastal hazards' problem. We have two general observations on this subject which I will just briefly summarize.

First, we believe that FEMA, in consultation with NOAA and other interested agencies, should develop specific environmentally

sound criteria for managing erosion risks. This will help communities to adopt the most effective measures to reduce threats from erosion, flooding, and storms.

Second, incentives for communities to adopt these criteria will be strengthened by providing funding for mitigation assistance. NOAA believes that mitigation assistance will help communities to make tough choices on flood and erosion risk management through land use controls.

NOAA has a major interest in coastal hazards management and flood insurance reform. The relationship between development in coastal areas and Coastal Hazards is at the core of NOAA's mission.

Through the administration of the Coastal Zone Management Act of 1972, NOAA supports State coastal management efforts to reduce risks from coastal hazards. We subscribe to the axiom that it is better and cheaper to avoid problems than to try to remedy them after the damage has been done.

The Coastal Zone Management Act created a voluntary FederalState partnership to promote wise management of coastal resources. Under the Coastal Zone Management Act, NOAA provides funding and other assistance to the 29 States and island territories with approved coastal management programs.

Many coastal States and territories have adopted policies and programs designed to limit development in flood and erosion-prone areas. State efforts include comprehensive setback programs based on documented erosion rates, building codes specific to hazardous areas, post-disaster redevelopment plans, and planning activities that restrict development densities.

Among the most important factors in coastal development has been the National Flood Insurance Program. The purpose of the program is to use Federal flood insurance as a tool to promote sound floodplain management, as well as reduce flood losses and the Federal Government's disaster relief expenditures, a mandate that is fully consistent with the Coastal Zone Management Act.

State coastal programs often build upon these national standards in developing local or regional specific coastal hazard programs. At the same time, specialized standards developed by State coastal programs further reduce flood and erosion risks, thereby advancing insurance loss reduction objectives.

NOAA has a long-standing interest in flood insurance reform legislation. Since, the debate on reform in the last Congress, NOAA and the Federal Insurance Agency staff have worked together on a number of issues, including the development of erosion risk management criteria for the community rating system, and drawing on NOAA's coastal mapping expertise to develop a nationwide coastal erosion mapping program.

We look forward to continuing our cooperative relationship with the Federal Insurance Agency in the future.

To conclude, Mr. Chairman, we believe the Federal Government should discourage development in areas vulnerable to coastal and other natural hazards.

The bill before you is necessary, but it could go further. I urge the committee not to neglect the importance of land-use manage

ment in reducing damage from flooding and erosion, and to adopt the recommendations.

I should say also that we cooperate closely with FEMA. Judge Witt and I have agreed on this testimony, and we think there is great opportunity to support this legislation. Thank you.

Senator KERRY. Thank you both, very much.

I would like to, in the time that we have available before the vote, explore what I sense is your central two points of concern, Mr. Witt.

I want to thank you for the broader support of this bill which is important, and the same, Dr. Baker. Thank you for that and for the input of your people in the course of your effort which has been very important.

Mr. Witt, as I listened to your testimony there were really two concerns that I heard you most focused on.

The first is on the question of compliance where you are concerned that we might need more than is in this bill. Specifically you are concerned about some of the homes that do not have mortgages or which are not under Federal control, and I will come to that in a moment, because we have thought about it and I think where we are may be the best compromise we can get in this. But let me go to the other area, first.

The second area you expressed concern on is in the question of the denial of insurance in an erosion hazard area which you are opposed to. You are opposed to the denial of that insurance. Dr. Baker, you are in favor of the denial of the insurance. Correct?

Dr. BAKER. I think we agreed that this is an important topic that needs some study, and the two of us agreed last night that we would like to put together a small study group and look at the impacts of the denial. Let me come back to you on that.

Senator KERRY. Let me explore it with you a little bit to find out whether or not it is even in need of study, if I can.

We give Federal Flood Insurance because the private sector will not provide insurance in certain places where people have had to build homes, or might "have to build homes." Correct? I mean, the purpose of giving a federally supported insurance program is to provide for what the private sector can't. Because if it were at private sector rates, it would be too expensive for these citizens who "need to live there" to pay for it. Is that accurate?

Mr. WITT. Yes.

Senator KERRY. And since we are talking about taking taxpayer dollars from other taxpayers in America who do not live wherever it is, the flood zone, barrier reef, beach, whatever, we ought to examine pretty carefully why we are asking them to ante up some money.

Now if there is an area approximately and accurately designated as a 30-year erosion zone-i.e., within 30 years this land is going to disappear. It is going to be under water or a cliff gone.

What is the public policy rationale that we need to study to determine whether or not we should provide cheap insurance so that someone can build. And, if they want to build at risk-i.e., capitalize for $250,000, $500,000, and see it disappear, amortizing their 30 years of pleasant existence there, that is their business. The