Two weeks after President Barack Obama signed a partial fix to the flood insurance crisis created by Congress, the impact of the work left undone is becoming more obvious in Florida. Commercial properties and second homes built before federal flood maps existed will get no relief from the skyrocketing flood insurance rates without further congressional action. Nor can they hope to benefit from state legislation aimed at creating a private flood insurance market for homeowners. The Legislature should reconsider. Businesses and second homes should have access to a better option than dubious, exorbitant rates from the federal program.
Congress patted itself on the back last month after it cleaned up some of the mess it created in the real estate market with the 2012 Biggert-Waters Act. That law had aimed to move all policies in the National Flood Insurance Program to actuarially sound rates by phasing out two kinds of subsidies over a five-year period. One subsidy occurred when a property was drawn into a higher-risk flood zone but still allowed to pay its previous rate, known as "grandfathering." The other subsidy applied to any property built before a community's adoption of the first federal flood maps, around 1970.
Under the changes Congress approved last month, the phase-out of subsidies for grandfathered policies was eliminated. The phaseout for owner-occupied older homes was put on a gentler slope. But nothing was done for second homes or commercial properties that predated flood maps. They are still subject to an average 25 percent annual increase in premiums until they reach an actuarially sound rate. And any property purchased since July 1, 2012, immediately loses its subsidy.
Pinellas County, home to more properties with pre-flood map subsidies than anywhere in the nation, is in for particular pain. Pinellas Property Appraiser Pam Dubov has found 1,609 older commercial properties that are affected. They include 649 beachfront parcels with a median improvement value (which includes building value but not land value) of just $157,000. What does it mean? The Tampa Bay Times' Jeff Harrington found that for Joe Caruso, who bought the Havana Inn in St. Pete Beach last year, it means a $5,000 flood insurance premium climbed to $45,000. That's nearly 10 percent of the policy limit the flood insurance program allows for commercial property, $500,000.
Pinellas' congressional delegation is pushing for a Washington fix. But under even the best-case scenario, that will take months. A better opportunity is now in Tallahassee where Sen. Jeff Brandes, R-St. Petersburg, and Rep. Ed Hooper, R-Clearwater, are pushing legislation aimed at encouraging a private flood insurance market. So far they have limited their ambitions to the homeowner market. The two should consider expanding that to at least compete with the National Flood Insurance Program's $500,000 commercial policies and to provide some options for owners of older second homes. It's in no one's interest that a problem-riddled flood insurance solution could price business owners and investors out of their properties.