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Lunacy of FEMA Hurricane Insurance Subsidy
One
of the most ludicrous fantasies of the self-indulgent is that a property owner has an entitlement of subsidized government
flood insurance. The inherent risk of building along the ocean shoreline is self-evident. The benefits that enhance the pleasure
of proximity to the seaside seem unending. However, when the forces of nature thrust her fury and a wall of water inundates
pristine dwellings, the first question asked after the storm usually involves rebuilding. The cost of repairs and renovated
construction, once paid by private insurance, now normally requires a federal guaranty. James
Bovard made some salient points just after Katrina in Uncle Sam’s Flood
Machine. "The National Flood Insurance Program (NFIP) is the Federal Emergency Management Agency’s
crown jewel. Unfortunately, the heavily subsidized insurance bribes people to scorn common sense, damages the environment,
and creates staggering liabilities for taxpayers. Federal flood insurance illustrates how selling at a loss can be politically
profitable. The primary effect of federal flood insurance is that far
more property is now damaged by floods than would have occurred if the insurance had not made it possible to build in flood-prone
areas. The Long Island Regional Planning Board in 1989 complained that federal flood insurance "in effect encourages
a cycle of repeated flood losses and policy claims." And, especially in places like Long Island, the program underwrites
the vacation homes of the wealthy."
Now that Sandy
made her presence known, many of those aforementioned Long Island properties were washed into the sea. Would anyone believe
that federal guarantees have any premium correlation to the actual costs of such disasters? The current disconnect between
subsidized costs for NFIP flood insurance and the enormous expense for reconstruction is beyond imagination. The libertarian and media celeb, John Stossel relates his personal experience in Taxpayers Get Soaked by
Government's Flood Insurance. One factor in building his beachfront property on Long Island was that
government insurance provided the guarantee necessary to qualify for a mortgage. "Should a big storm wipe out half the coast, you'll cover our losses — up to
a quarter-million dollars. Thanks — we appreciate it — but what a dumb policy. The
insurance premiums were a bargain. The most I ever paid was a few hundred dollars. Federal actuaries say if the insurance
were realistically priced, it would cost thousands of dollars. Why should the government guarantee water's-edge insurance?
Why should the government be in this business at all?"
Mr.
Stossel has the knack for boiling down the complex into the common dominator. If private underwriting is not willing to cover
the obligation of the risk, at a NFIP discount premium, maybe the insurance is too cheap. The Century Housing organization
in Should Taxpayers Subsidize
Property Owners in Flood Areas?, states: "Private insurance companies provide almost no flood insurance,
because the insurance industry recognizes the huge risks."
Their conclusion is, "The
bottom line is that the taxpayers subsidize the development of property located in known
floodplains. And that raises the question of whether that subsidy is good public policy, or whether the whole approach to
flood emergencies should be changed. Would we all be better off if we ended the NFIP and instead provided short-term subsidies
to floodplain property owners to move out of the danger zone, avoiding the inevitable loss of property and lives that occur
so predictably along the nation’s waterways? At the very least, it seems that FEMA should end subsidizing the NFIP premiums for any insured
property owners. And it may be a good idea for the states (which control land use) to prohibit construction within floodplains,
or require any owner of property located in a floodplain to carry insurance to reimburse public agencies for emergency services
when floods do occur."
The
political attraction to continue cheap government waterfront insurance has property owners flocking to buy up and build their
dream house. This is probably the costliest boondoggle that benefits the upper middle class and the affluent. Human nature,
being what it is, even the purest, as John Stossel, knows a good deal when it is dangled in his face by a seductive government.
So what is the alternative, only high-rise condominiums with
expensive maintenance fees owned by offshore tax dodgers? Let us hope that the cherished tradition of individual property
ownership is the standard that is protected by all government jurisdictions. However, perpetuating the incentive to willingly
build in harm’s way, where personal financial risk is substituted by government guarantees that reward imprudent decisions,
needs to change. The rush to federalize disaster aid and transfer
funds back into state coffers is symbolic of the obscene distortion within national taxation. As long as individual states
must balance their yearly budgets and the federal government persists with unfunded deficits, individual states will gladly
take the bribes and handouts. Disasters are part of life. There
is no warranted absolution from calamites. Insurance that is fairly priced, and rigidly administrated is a system that has
provided relief from great suffering and pain. Nevertheless, the business of insurance should be a private contract among
willing participants. If the cost to insure is too high, just
maybe the economics of ownership is too steep to continue to support the lifestyle. The collectivist proponents of big government continue to spread their confusion and prevarications. The Hill reports
in Democratic leaders say FEMA has
enough cash for Sandy recovery. "FEMA’s coffers are nearly full because the storm struck at the beginning
of the fiscal year, which started Oct. 1. On top of more than
$1 billion left over in the Disaster Relief Fund from last year, Congress has appropriated $7.1 billion for fiscal 2013. President
Obama’s decision to make disaster declarations in New York and New Jersey — in addition to emergency declarations
in eight other states and the District of Columbia — allows local officials to access those funds immediately."
Disaster relief can be compassionate and supportive. Even so, the practice of subsidized
federal flood insurance only encourages the extent and degree of future disasters. Lacking common sense is a national condition.
Building on high ground is the prudent course for action. James
Hall – November 7, 2012
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