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million during the year, is wholly insufficient to meet the needs of the farmers in the flood area, and those in other sections of the country where production disasters have occurred or probably will occur during the 1951 crop year. The Department recognizes that the flood damage has been so extensive and so much more destructive than just the loss of one year's crop that affected farmers will require several years to make up for it financially, so that they will need extended as well as extensive credit. It is proposed that disaster loans will be made at 3 percent interest.

Commercial and industrial credit, $95,000,000.-To the Reconstruction Finance Corporation, it is expected, will come many of the property owners whose losses are great but who can rehabilitate themselves if long-term credit on easy terms is available. It is believed that the sum mentioned will adequately supplement available commercial credit and the funds already in the hands of the lending agencies.

Home owners credit, $35,000,000.-The 100 percent FHA-insured mortgages, which would be the backbone of this program, cannot be granted to all the flood victims who are expected to apply unless Federal funds available are supplemented by this amount.

Administrative procedures and costs

It is not contemplated that any new agency would be created for the loan program except so far as the FDA would set over-all policies and make the necessary allocations. As has been indicated, the Department of Agriculture would be responsible for actual operation of the farm loans, while responsibility for the rest of the program could be assigned to the RFC, which in turn would work with the HHFA. The personnel of these agencies might be increased temporarily to handle the volume of business anticipated, but the addition would be for a short time and add no significant sum to the cost of operations, never representing more than a very small percentage of the entire appropriation.

Close coordination would be maintained between the direct reconstruction and loan programs by FDA, and procedures and policy worked out in relation to the total restoration objectives.

For several weeks, a committee on Federal Financing of Flood Rehabilitation, headed by Judge H. G. Leedy, president of the Federal Reserve Bank of Kansas City, has been studying the problems involved. This committee is representative of all groups in the flood area, not just business and finance. On September 8, 1951, it suggested a sound approach, of which the chief points were:

1. A recommendation that commercial banks be authorized to act as fiscal agents in making loans of $5,000 and less in behalf of the Government in the disaster program.

2. That the RFC be authorized to purchase preferred stock in corporations as part of the Government's financing program. There is precedent for this in similar action by the RFC during the depression.

3. That a lending arrangement for industry and agriculture be made similar to the V-loan plan used for war production contracts in World War II and now used on defense-production contracts. Essentially this is a Government guaranty of part of a loan made through commercial channels.

4. That $30 million be added to disaster loan funds available to farmers. 5. That FHA extend its insurance on old houses purchased by flood victims on as liberal terms as provided for building new ones.

6. That steps be taken to expedite the approval of flood-disaster loans. Other recommendations are included in the full report of the committee, which is attached to this statement.

As in the case of the direct restoration of production program, the FDA would coordinate the various parts, would settle interagency issues and would relate all phases of the program to the specific objective of restoring the economy of the flood area.

The principle

III. FEDERAL FLOOD INSURANCE

The

Generally speaking, flood insurance has not been available anywhere. Less than 1 percent of industrial property is protected against waterda mage. crop insurance program of the Department of Agriculture will be of benefit to those farmers who carried it. However, this is limited to the actual investment in the particular crop and is restricted by legislation to the general cost of producing the crop in the area. The number of farmers carrying this insurance varied widely, ranging from 6 percent in some counties to 73 percent. coverage ranged from $6.60 per acre to a high of $36.

The

Difficulties in the way of establishing a general system of private flood insurance stem from the fact that only those potential customers in relatively hazardous areas would be interested, and by the inadequate information available on what flood damage might be. Available figures deal only with major floods in major river basins. It is possible to assess the damage caused by the overflow of these rivers beyond certain measurable stages It is not feasible to measure the damage caused by the backing up of surface water from heavy rainfall.

Data on these points are so unsatisfactory that insurance men do not even like to use the word "insurance" in connection with the proposed measures. The prefer to speak merely of a "flood damage" program. Therefore, the possibilities of a purely private flood insurance program incorporating the coordination of a large group of private companies for coinsurance and reinsurance are remote. These facts led to the recommendation of all those who were involved in the Midwest flood disaster that some system of Federal flood insurance be instituted, not only for the area affected this year but for the Nation as a whole. Obviously, this is a more permanent feature of the present rehabilitation program than any of the others. As adequate control and water-use projects are brought to realization, it might become unnecessary, but it will be needed for some years to come. Only the Federal Government can get this insurance job done, just as only the Federal Government can do anything about navigable rivers. The insurance is, in fact, a part of the Government's responsibility while control of the rivers is undertaken.

There are two methods available. The Federal Government could be a reinsurer, or the Federal Government could provide a reserve against which private companies could draw for losses over a certain amount. As the reserve of the companies grew, which might well happen if there were no major floods for several years, the need for the Government fund would disappear. Furthermore, unless

the Federal Government takes action, any attempt of the companies to institute insurance of this kind would be subject to the control of 48 State insurance commissions.

Previous experience

The program set forth in the President's message and H. R. 5259 was drawn up partly with the experience of the War Damage Corporation in mind. This Corporation, formed in 1942, issued 8,904,864 policies and renewal certificates for a total amount of risk of $117,058,717,355. The Corporation had no organization of its own, but some work was performed by the RFC, and the policies were written by private companies. Insurance agents received 5 percent of the premiums up to a maximum of $1,000, and the insurance companies 3.5 percent. The insurance companies participated in profits and losses to the extent of 10 percent, up to a maximum of $20,000,000. Participating in this arrangement were 546 companies. The premiums were 10 cents per $100 of insurance on residential property and 10 to 30 cents per $100 on commercial property.

Producers' fees and company expenses amounted to $21,679,388, and net premiums collected to $245,921,053. There were no geographical or other differentials as to rates except for the distinction between residential and commercial property. The administrative expenses apportioned to the War Damage Corporation amounted to $1,659,151.

During the war, the Maritime Commission also operated an insurance program. Here again the insurance was issued through the private companies acting as agents. But the companies did not participate in profits or losses. Fees for services to 120 companies amounted to $1,250,000 to cover their operating expenses. They were approximately 2.5 percent of the premiums. Representatives of the companies estimated that a similar commercial operation involving a comparable volume of business would have taken three to five times this amount. Losses and fees together during the operation of this program amounted to $32,250,000, and the Treasury netted a profit of $16,800,000. (The profit from the War Damage program was about $200,000,000 because anticipated losses never did materialize.) Under the War Risk Insurance Act of 1950 (Public Law 763) the Government again is authorized to provide insurance and reinsurance against loss or damage by war risk in the event that adequate private insurance cannot be obtained on reasonable terms.

The Federal Government has been engaged in many other insurance programs. These include Federal deposit insurance, unemployment insurance, insurance on housing loans, old age and survivors' insurance, and various insurance programs for veterans.

On the basis of this experience, private insurance companies would be willing to participate with the Government in a flood-insurance program receiving

reimbursement for services, it is understood. While they would prefer this to participation in profits and losses, even to a limited extent, they would not bar discussion of such participation if the Government considers it desirable.

It is significant that in the past many private companies have experimented with flood insurance, only to reach the conclusion that flood damage is not an insurable risk from their standpoint. They reach this conclusion not only because of the limited and concentrated nature of the problem but because the actuarial data needed is not available.

Availability of this insurance would do much to remove the paralyzing fear which has arisen in the flood area, especially after the high waters of September. At present $220,000,000,000 worth of property in the United States is covered against hazard. The average property loss in floods in the 7 years previous to 1951 is estimated at $20,000,000. If major disasters of this kind were postponed for even 5 years, it would be possible to set a workable program on its feet. Administrative procedure and costs

Since this program is clearly separate from the emergency programs proposed in previous sections and limited to a single flood in one region, flood insurance must be administered on a national scale and provided under a continuing program. Based on the experience of the War Damage Corporation, it might best be assigned to RFC, where relationships with private insurance companies and comparable programs already exist.

Thus, the Flood Insurance Revolving Fund' would need no organizational structure of its own. It would be the province of RFC under the general direction of FDA to work out the difficult questions of just what constitutes a flood, the amount of coverage, the determination of rates. Probably coverage should be limited to a major portion, perhaps 70-80 percent, of the value of insured property. I the insured bear some of the risk, they would be more likely to take precautions against loss and observe warnings, thus minimizing damage. Perhaps, too, there should be a distinction between movable and immovable property. The fixing of rates would of necessity lie partly in the realm of speculation, but experience might remedy this defect.

The revolving fund of $50,000,000 is considered adequate, although this too must be admitted as largely speculative. However, it is worth noting that the War Damage Corporation was formed with an authorized stock of $100,000,000 for a program even more speculative but certainly vastly larger in point of coverage anticipated.

It is not contemplated that the program would necessitate any increase in Federal personnel. It is understood that a large group of companies would be willing to participate.

OTHER REHABILITATION PROJECTS

The bill before this committee is not the sum of all efforts at rehabilitation in the flood area. Through the routine channels, great efforts are being made to restore public property and to rebuild and improve the flood protection which failed so tragically in July. Levees and dikes are being rebuilt. New dams are in process of construction.

Nor should it be supposed that the people of the devastated area are supinely waiting for the Federal aid to get them back on their feet. The efforts made by these people, their officials and private organizations, their States and the Federal agencies in the field have been an inspiring example of cooperation and sacrifice. The States have spent or allocated millions of dollars for the restoration of highways. Municipalities have been matching these efforts in repairing streets and community facilities of all kinds.

In Kansas and Missouri, where the bulk of the damage was done, the State and local governments have used their resources to the maximum extent for the emergency relief job, and are carrying out rehabilitation programs within the limit of their abilities now. Some idea of this work can be gained from the reports of the two Governors and their advisory committees which are attached to this statement.

It is eminently fitting that the sympathetic aid which was rushed to the stricken area at the dramatic height of the disaster, for purely relief purposes, should now be matched by the National Government in the less dramatic but even more vital task of rehabilitation.

CONCLUSION

H. R. 5259 appropriates the sum of $400,000,000 for a wide variety of floodrehabilitation assistance-partial indemnification, direct rehabilitation assistance, loans and insurance. But each part of that varied program is an essential cog in the machine by which a rich, vital section of the national economy can be restored rapidly to full productive capacity. The success of each is dependent upon the efficient workings of the others.

The indescribable destruction visited along 1,000 miles of river valley can be repaired only if the action taken by the Nation is on a large, a determined, and an immediate scale. It must be large to deal with the scope of the disaster, which was at least twice as devastating as any other in our history. It must be determined to match the efforts of the people in the area and the whole program by which the United States are mobilizing their economic strength. It must be immediate to achieve the maximum benefits from the labor of the people and the resources of their land.

It may be appropriate here to quote a telegram from the labor-management committee for defense manpower of region IX, the region in which the flood damage has been heaviest. This group of businessmen and labor leaders from Kansas, Nebraska, Iowa, and Missouri wired to the President:

"The devastation caused by the flood will have an adverse effect of major significance upon the economy of the Nation in genera! and this region in particular, resulting in serious dislocation of the labor supply, unless remedial steps are taken promptly.

"Industry and labor will inevitably remain uncertain as to rehabilitation or relocation until a definite program is formulated and definite steps taken for its effectuation. Already some industries have announced plans for discontinuance of business activities. Already some elements of labor, important to the restoration of industrial activity, are moving out. Home owners and businessmen are uncertain about rebuilding in the recently submerged areas.

"Therefore, we urge that you request the Congress to enact as speedily as possible legislation which will provide (1) indemnification for those who have suffered losses in this flood; (2) full protection against further flood losses; and (3) other measures that will assure sound rehabilitation of segments of a dislocated labor force."

If there is any one element in the proposed rehabilitation program that is more important than another it is speed. The land so recently inundated must be worked this fall if farmers are to have a crop that will help feed all of us next year. The workers in city and country must have homes over their heads by the time winter sets in. Business in the stricken cities must have some assurance of what it can expect. Measures that will save us today will be ineffective tomorrow and hopelessly inadequate next month.

An unrealistic lending program is not the answer. If we rely upon it, the losses to the Government may be even larger. Every effort would be made in working out this program to utilize loans, but no fixed ratio between loans and direct rehabilitation assistance should be imposed upon the Federal Disaster

Administration.

If Congress will act as quickly as it can, the people of the stricken districts will be able to go ahead with their rehabilitation work, strengthened by the faith that adequate assistance is on its way. The flood area will have received a stimulus which will be reflected in the well-being of its people immediately and in that of all the American people next year.

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