sibility to the NFIP. Over the next few weeks, I will be seeking a mark-up on this legislation in the committee and will seek to bring the bill to the Senate floor this session of the Congress.

Before I open this hearing up to my colleagues present here today so that they have a chance to make their statements, I would be remiss if I did not mention the significant contributions that the ranking minority member Senator D'Amato has brought to this process. Senator D'Amato and his staff have made many positive suggestions that have clarified and improved this legislation. Some differences of opinion remain-in particular, the limitation on availability of flood insurance for new construction in erosion hazard areas. We hope that this hearing will help assist the resolution of these differences.

I also would like to thank today's witnesses for agreeing to testify and share your respective expertise. Such input in the past has been extremely beneficial, and I look forward to hearing from you today regarding your suggestions on how S. 1405 might be appropriately refined and improved. We look forward to your testimony.

STATEMENT OF SENATOR PAUL S. SARBANES

CHAIRMAN, HOUSING SUBCOMMITTEE

Good Afternoon. We are here today to reexamine the National Flood Insurance Program, an important program that has come under much scrutiny over the past couple of years. With the devastating hurricanes in recent years and especially now with this summers flooding in the Midwest, its time to reassess this program.

The National Flood Insurance Reform Act of 1993, S. 1405, works to address the major concerns of the flood insurance program including the actuarial soundness of the fund, the lack of compliance, and the treatment of the erosion-prone areas.

When the program was first authorized in 1968, it was intended to be a self-funding insurance resource that could pay property damage costs resulting from severe flooding and would reduce the need for disaster assistance. The program has been amended several times and has largely been successful, but problems have arisen throughout the last few years that have raised questions about the program.

One of the criticisms is the threat of the fiscal soundness of the insurance fund. With over $200 billion of insurance in force, $160 million in reserves, and $60 million cash-on-hand, and the threat of a major hurricane cycle upon us, we need to resolve this situation expeditiously. This problem is in part due to the lack of compliance: less than one-third of the homes located in the floodplain have flood insur

ance.

As one who has supported the National Flood Insurance Program, I am concerned that noncompliance and high potential taxpayer liability will seriously weaken the stability of the program and could lead to calls for its repeal. Such an undesirable result could mean the loss of insurance protection for homeowners who have relied on the Federal Flood Insurance program and lenders who count on Federal flood insurance as security for mortgage loans. It could also result in higher disaster assistance costs.

There is much in S. 1405 to recommend. Included in the legislation are provisions that would increase compliance in flood-prone areas. The legislation also recognizes and encourages flood mitigation activities, and provides incentives in the form of lower premiums in those communities that undertake flood control measures.

Another important aspect of the bill is the erosion management program. The erosion provisions were included in an effort to minimize the loss of property in areas projected to be under water due to erosion in the near future. Quite simply, now that it is possible to plot future erosion with a high degree of accuracy, it makes little sense for the Federal Government to provide insurance that encourages development in these areas. The revised flood bill substantially addresses the many concerns expressed by water-front property owners, coastal communities, and others.

We have a distinguished panel of witnesses for this hearing, and I look forward to your testimony-both to clarify the outstanding questions about this legislation and to comment on the constructive modifications that have been made in Senator Kerry's bill.

I particularly want to take this time to recognize Ms. Rebecca Quinn. Ms. Quinn is here today representing the National Association of Floodplain Managers, but she is also the floodplain manager from the State of Maryland. Not only has she taken an active role at the National level to help shape this legislation, but she has also been an effective manager of the flood control program in Maryland and a constructive voice in discussions with groups and individuals in Maryland who are interested in the flood program.

Before I turn the chair over, I want to commend Senator Kerry on all the hard work that has gone into the S. 1405. I believe that S. 1405 is a sensibly balanced approach to the many issues which he had to work with. Senator Kerry, I now turn the chair over to you.

STATEMENT OF JAMES L. WITT

DIRECTOR, FEDERAL EMERGENCY MANAGEMENT AGENCY

Mr. Chairman, and Members of the subcommittee, it is my pleasure to appear before you today to discuss proposed changes to the National Flood Insurance Program (NFIP). I would request that my full statement be submitted for the record and I will summarize its contents in my oral statement.

This morning I would like to share with you my thoughts and goals as Director of FEMA, talk about some of our most recent experiences responding to the Midwest flooding and then discuss the specific changes being considered to the NFIP.

When I became Director of FEMA, I committed to the Congress, to the President and to the American people to rebuild and renew FEMA. Having served the people of Arkansas for over 16 years as a local official and as a State emergency services director, I saw what emergency management can do, how it can help people in times of disaster and, more important, how it can work with people to avoid disasters. It is these experiences upon which we are building a new FEMA.

I believe the mission of FEMA is simple. To reduce the loss of life and property from all types of hazards by providing the leadership and support for a comprehensive, all-hazards emergency management program which includes mitigation, preparedness, response and recovery. The cornerstone of this mission is mitigation.

I can think of no better way to serve people than to help them avoid becoming disaster victims. Reducing the risks faced by our people and our communities is the best job emergency management can accomplish.

Buildings, homes and schools that are built better and are sited out of harm's way, obviously withstand hazards better. This means less destruction, less personal and financial hardship, less tragedy. This also means less paying out of disaster assistance dollars by Federal, State and local governments to rebuild our homes our businesses and 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 throughout Andrew. A few short blocks away another community wasn't so lucky.

The heroic efforts of the people of 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 our siting and building practices. These problems should be constantly kept in mind as we begin the long recovery and rebuilding process throughout the flooded Midwest. The opportunity is at hard to significantly reduce the number of people at risk from flooding in the effected areas. Against the backdrop of the Great Midwest Floods of 1993, the time has come to make the hard political choices and to make the long term investment in mitigation.

For those responsible for making investments in mitigation-mayors, county commissioners, private companies, the political support often isn't there or the short term economic costs can't be justified. If we are to make a difference right now in the recovery of the Midwest, in the rebuilding of south Florida and in all of those States and localities at risk from floods or hurricanes or earthquakes, mitigation must become a National priority, and FEMA must lead the way.

We must begin to make mitigation worthwhile at the State and local level. When I say worthwhile, we must provide the rationale, the expertise and support-the fundamental incentives for mitigation to governments, the private sector and individuals. We must combine these incentives with full use of our existing authorities and programs.

We are taking a first 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; the National Earthquake Hazards Reduction Program (NEHRP), the Hazard Mitigation Grant Program under our Disaster Relief Program and the floodplain management programs of the NFIP.

By taking this step, we will provide a concentrated focus to our efforts to work with State and local governments. It will also allow us to take advantage of the op

portunities for implementing multi-hazard mitigation programs. For example, when we are working with communities on their floodplain management ordinances, we can encourage them to consider other hazards faced by their community. When a community or State applies for a hazard mitigation grant after a disaster, we should not only encourage but require that these projects are multi-hazard in nature.

Clearly, the cornerstone of the Mitigation Directorate will be the floodplain management programs of the NFIP.

The NFIP is one of the most effective mitigation programs in the Federal Government. In its 25 year history, it has provided a solid example for integrating natural hazards insurance and mitigation, but I believe more can be done.

Mr. Chairman, I believe we share the same goals as the legislation, which is to place renewed emphasis on the NFIP and to use insurance as an incentive for mitigation. I intend to fully utilize the incentives embodied in the NFIP to accelerate achievement of its risk reduction goals and I look at the legislation you are proposing, Senate bill 1405 as a significant step in strengthening this program. In this context I would like to share with you the Administration's thoughts on the proposed legislation.

There are a number of major issues which should be addressed in our efforts to improve the program. These include compliance with the flood insurance purchase requirements on lenders, mitigation grant programs, and the mapping of erosion areas. We have a number of questions and clarifications which have been transmitted to the committee prior to this hearing, so I will keep my remarks focused on the major issues.

To summarize our position on the provisions of Senate Bill 1405, we strongly support the increased insurance purchase compliance requirements, although we feel that the current proposal could be strengthened. For example, by requiring flood insurance when federally regulated lending institutions purchase mortgage loans from unregulated lenders secured by properties in special flood hazard areas. We also strongly endorse the mitigation grant program to help communities establish plans for removal of structures from the floodplain, and to carry out those plans. The Midwest floods have again demonstrated that the most important step we can take is to help communities be prepared to move quickly following the floods to make sure their citizens do not suffer more in the future. Most of the communities we deal with are small. They want to reduce the potential for destructive flooding, and desperately need this help.

We fully support Section Three of the Bill, which would give statutory recognition to the Community Rating System. Over 750 communities participate in this voluntary program which gives credits toward reducing flood insurance premiums in those communities exceeding the NFIP's minimum standards. This program has been extremely successful, and provides a solid link between floodplain management and insurance.

The Bill gives FEMA the authority to identify erosion hazard areas, which will then enable us to more effectively support communities in managing erosion hazard areas. We also endorsed the increased limits of coverage provided for in the bill which encourage people to insure to value and provides better coverage for small businesses.

Mr. Chairman, as you can see, we are very pleased with the vast majority of the bill's provisions. However, we do have some concerns in just a few areas.

In order for the NFIP to effectively protect individuals against the peril of flood, and to provide the leverage with communities to adopt and enforce the floodplain management requirements, the insurance must first be purchased. We all are painfully aware that despite the NFIP's efforts in educating thousands of agents and lenders each year, and spending nearly a million dollars annually for marketing and training activities, only about twenty percent of those nationwide who should have the coverage have actually purchased it. In the recent flooding disaster in the Midwest, that number might well be as low as ten percent.

The bill seeks to improve the program's insurance policy base by strengthening the requirements on lenders who are federally regulated or insured, and those federal agencies that insure or place mortgages in flood hazard areas, to obtain flood insurance when extending mortgage funding. We strongly support this effort. Increased compliance is critical in order to provide a greater spread of risk, and to support the new initiatives included in the bill. Without a significant increase in the policy base, the current policyholders who already fund all the NFIP's mitigation activities will have to pay for the additional mitigation, which will raise premiums in excess of $50 per policy. We also strongly support the provisions of the bill which will mandate better coordination among the federal agencies in implementing the mandatory purchase requirements.

There are some omissions which will result in less than full compliance with the mandatory purchase provisions by covered lenders. For example, I am concerned there is no mention of refinancing of home loans, or any provision for review of existing mortgage portfolios, which have the effect of limiting the purchase requirements to loan origination. This would mean that portfolios of existing loans even at federally regulated lenders would still be at risk, unnecessarily exposing the U.S. Treasury to demands for financial disaster assistance in the future. However, we applaud those lenders who promote compliance through portfolio review. I believe these would be positive additions to the bill.

Improved compliance with the mandatory purchase provisions alone will not guarantee that everyone at risk will be covered by flood insurance. There is a large, and 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 which should have this coverage will be outside the mandatory purchase provisions.

This conclusion was confirmed in the Midwest flooding. 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 a mortgage. 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 ahead of us in educating people about the risk of flooding.

We enthusiastically support the provisions for mitigation insurance. As we speak, community officials and their constituents are agonizing over ways to remove substantially damaged structures in the wake of recent floods. This addition to the flood insurance coverage provided under the standard policy is critical to the success of their efforts in the future.

We are however, concerned about the provision that would deny insurance in identified erosion hazard areas. We believe that the strength of the NFIP has always been the leverage in the agreement between the participating communities and the Federal Government that communities would enforce sound land use management in exchange for the availability of flood insurance. Actuarial premiums charged in these 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 a deterrent this really is.

It is time to answer this question. Therefore, we seek your support for a shortterm study to be done by FEMA, in conjunction with NOAA, that will examine the impacts of the denial of insurance, the application of actuarial rates on development in coastal erosion zones and 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, each and every year, the National Flood Insurance Program saves over half a billion dollars because communities have adopted and enforced floodplain management requirements.

Structures built after communities join the NFIP suffer 83 percent less damage than those built before the standards are in place. And independent studies have shown that development in the floodplain is not encouraged by the existence of the flood program, but discouraged. One recent study indicated that as much as 78 percent of potential development is steered away from the floodplain simply because of the program's minimum standards.

These are just statistics to many people, Mr. Chairman, but to me they represent real people and communities who have been helped by this program.

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

Mr. Chairman, I will be happy to answer any questions you and other Members of the committee may have.

TESTIMONY OF DR. JAMES BAKER

UNDER SECRETARY FOR OCEANS AND ATMOSPHERE
NATIONAL OCEANIC AND ATMOSPHERIC ADMINISTRATION

DEPARTMENT OF COMMERCE

Good morning Mr. Chairman and Members of the subcommittee. I am Dr. James Baker, Under Secretary of Commerce for Oceans and Atmosphere, and Administrator of the National Oceanic and Atmospheric Administration (NOAA). I am pleased to be here today to discuss NOAA's view on S. 1405, the National Flood Insurance Reform Act of 1993. I will also discuss briefly NOAA's interest in coastal flooding and erosion.

The problem we face along our coasts is really very simple: development sited too close to water bodies and without regard for the dynamic coastal environment creates unacceptable public safety risks and often causes significant environmental damage, and, eventually, unacceptable costs to the Federal Government for disaster response. This is one area where the concept of sustainable development we are trying to address within this Administration should be applied.

Mr. Chairman, NOAA believes S. 1405 is a workable compromise that will yield significant improvements to the National Flood Insurance Program (NFIP). We also believe the bill will provide a framework for a closer relationship between NOAA and the Federal Insurance Administration (FIA), and we support it. Our thoughts regarding the legislation follow:

NOAA supports the lender compliance and other reforms designed to require property owners who are eligible for NFIP coverage to purchase the coverage. We support the authorization of the Community Rating System. NOAA supports the authorization of "increased cost of construction" coverage as a rider to existing NFIP policies. We support the requirements that the Federal Emergency Management Agency (FEMA) map erosion hazard areas and that erosion risk information be disclosed at time of purchase, and I would add that NOAA is prepared to assist FEMA as it develops a coastal erosion mapping program.

NOAA also supports 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, NOAA believes a joint NOAA/FEMA study of charging actuarial rates and requiring the purchase of insurance at those rates, as well as the impact of a prohibition on insurance should be conducted before a prohibition is imposed in legislation.

While these provisions further the goal of preventing coastal disasters, NOAA believes S. 1405 should go farther to address the heart of the coastal hazards problem. NOAA has two general observations on this subject, which I will summarize here. First, FEMA, in consultation with NOAA and other interested agencies, should develop specific, environmentally sound criteria for managing erosion risks. Without these criteria, communities are unlikely to adopt the most effective measures to reduce threats from erosion, flooding and storms.

These criteria should emphasize the protection of natural and beneficial floodplain functions and the preservation of often fragile coastal resources. Without these criteria, communities are likely to respond to erosion with hard structures and other measures that are often ineffective or result in the destruction of coastal resources. 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 NFIP 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 (CZMA) of 1972, NOAA supports State coastal management efforts to reduce risks from coastal hazards. Through the National Weather Service, NOAA plays a vital role in predicting, and preparation and warning for hurricanes, floods, and othe: natural hazards. The Weather Service also has more than 30 years of experience in developing precipitation frequency information used by the FÍA in delineating floodplains.

In addition, NOAA provides information on tide levels, used in predicting the effects of coastal storms. Tide levels are also the basis for delineating the location of the U.S. shoreline for nautical charts-another NOAA mandate. This shoreline information is used frequently to calculate coastal erosion rates. Lastly, NOAA supports a wide range of research on coastal hazards prediction and management.

NOAA subscribes to the common sense axiom that an ounce of prevention is worth a pound of cure-it is better and cheaper to avoid problems than to try to