A year-old federal law that was intended to reform the nation's debt-ridden flood insurance program now threatens to destroy Florida's real estate market. A U.S. Senate committee today is set to consider the impact of the Biggert-Waters Act of 2012 at the urging of Louisiana's senators. But far more urgency is needed from members of Florida's congressional delegation — who should appreciate the economic necessity of keeping property insurance affordable. They need to push their colleagues to delay or reform the law to allow for a more gradual transition to higher rates.
In less than two weeks, nearly 269,000 Florida property owners will face quickly escalating flood insurance premiums over the next five years — about 20 percent annually for homeowners and 25 percent for other property owners. And if they try to sell their older, low-lying properties, potential buyers will learn they would face the market rate for such flood insurance policies immediately. Tampa Bay Times writer Jeff Harrington recently reported just one example: New owners of an older St. Petersburg home purchased for $205,000 face a flood insurance premium of $17,000 annually starting next year — up from just $1,700. Yet save for a few media releases calling for delay, Florida's congressional delegation has been sitting on its hands.
Biggert-Waters barely caused a ripple when Congress passed it in July 2012 in acknowledgement of the flood insurance program's $18 billion debt. The law would eventually end two kinds of subsidies. Starting this year, subsidies for properties built before the early 1970s — when communities adopted the first federal flood maps — would be eliminated over five years (including subsidies for 268,646 Florida properties). Starting in 2014, other subsidies known as grandfathering would be phased out over five years with 20 percent annual increases. Grandfathering is applied when properties end up in a higher-risk zone when flood maps are updated. That provision is causing particular consternation in Louisiana and New York, where new federal flood maps are expected to identify many more properties at risk for flooding. (At the behest of Louisiana's delegation, the House this summer passed an amendment to delay the elimination of grandfathering, but it's gone nowhere in the Senate.)
It's a popular misperception that those benefitting from subsidies are millionaires living on the beach. Those affected by this year's changes include Florida families in older, inland homes built before flood maps existed. Also little understood: Coverage for homes is limited to no more than $250,000 per structure and $100,000 for contents. Pinellas County's post-World War II housing boom means it now leads the nation with 50,734 policies subsidized because of the property's age; Miami-Dade is second with 47,362.
Unrealistic insurance rates are a familiar problem for Floridians. The multi-hurricane seasons of 2004 and 2005 highlighted that windstorm property insurance rates did not reflect the potential risk. For policyholders who were forced into the state-run Citizens Property Insurance Corp., the Legislature eventually adopted a reasonable policy that caps annual rate increases at no more than 10 percent a year and doesn't treat new policyholders differently than long-standing ones. That has allowed for more manageable rate increases while increasing the company's solvency.
Congress should consider a similar schedule. Reducing the debt of the flood insurance program is in taxpayers' long-term interest, but not at the short-term expense of devastating coastal communities' real estate values. No one is better positioned than Florida's delegation to map out a better way.