2014's First Post: A Flood of Optimism?

Happy 2014!

I was actually trolling for a nice, upbeat, positive post to inaugurate the new year. How about a water ethics charter? Been there, done that. California gets serious about groundwater management? Oh, please! Okay - let's try California bites the bullet on the Bay-Delta. No go. I know - something from the Eastern US: Florida reforms its water policy! Probably a non-starter. 

I should have gone with one of the above but then I heard a story on NPR about how Congress is upset with FEMA's flood insurance premium increases to some homeowners. Congress passed a law in 2012 permitting FEMA to raise premiums to reduce its debt, now $24 billion.

So what has happened now that FEMA is following the law? Constituents are incensed at the increases and letting the MCs know. Now, Congress wants FEMA to back off. The MC most outraged is Rep. Maxine Waters (D-CA), whose name is on the law (duhhhh...). From the NPR story:

Right away, the phones in Congress started ringing — ringing so much so that Congress called Fugate in to demand a stop to the very law it had passed. Among the most outraged was Maxine Waters — the co-sponsor of the Biggert-Water's Act. At the hearing, Waters described her law as "well-meaning," and then scolded Fugate for not coming to Congress earlier to explain just how high the premium increases would go (though they were specifically called for in the Biggert-Waters Act).

"Let me just say," she told Fugate, "all of the harm that has been caused to thousands of people across the country —[who] are calling us, [who] are going to lose their homes, [who] are placed in this position — is just unconscionable."

Maybe Maxine ought to read the bills to which she affixes her name and/or understand the likely consequences. Raise flood insurance rates and not expect people to get worked up?   

I am not going to propose a solution to this morass; flood insurance is not my forte. We should neither 'reward' homeowners to build in floodplains nor encourage them to rebuild in the same place after being flooded. But subsidized flood insurance is not always a boondoggle. But as my friend and colleague Gerald Galloway - for my money, the smartest guy in the room when it comes to US flood policy and management - indicates in the article: 

Yes, Galloway says, there are flood-prone places like Louisiana that suck up a big share of FEMA's flood money.

"But wait a second," he says. "Thirty-five percent of our nation's oil and gas comes from the Gulf Coast, and these people live in some form of risk." Galloway says they need to live there to keep the oil and gas business running.

 He favors not raising rates for most homeowners right now — holding off until ways can be devised to cushion the impact of higher rates in places prone to flooding. "Recognize that it is not a flood insurance program," Galloway says. Rather, "it is a program to maintain the viability of communities and their economy."

That last sentence is especially instructive and makes sense to me. But so does Craig Fugate's comment below. 

I'm sure Congress can wisely legislate its way out of this.

 "The moral hazard of subsidizing risk is, we're going to rebuild right where we were, just the way it was, and we're going to get wiped out." - W. Craig Fugate, FEMA Administrator

Comments

[Michael]

Hi, David and Victoria.

Thanks for replying.

Victoria: good point!

David: We're subsidizing all the organizations - not just the oil/gas/petrochemical companies - who hire people who live in floodplains and get 'cheap' flood insurance. Presumably all those organizations save money on salaries. I think Gerry Galloway's point is that it is worth it to the rest of us to subsidize flood insurance for people who work for the oil and gas in LA so that they keep things humming and we get the fuel.

[Victoria Leuba]

Just one more reason to wean this country of its dependence on oil and gas.

[Account Deleted]

You've missed an important factor: cheap flood insurance for people for work for oil and gas saves oil/gas companies money on salary. We, the non-LA people, are therefore subsidizing oil/gas businesses.

Take away the subsidy and people will leave/demand higher salaries due to cost of living. That's the way to align risk and incentives.