[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
MANAGEMENT AND OVERSIGHT
OF THE NATIONAL FLOOD
INSURANCE PROGRAM
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
HOUSING AND COMMUNITY OPPORTUNITY
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
OCTOBER 20, 2005
__________
Printed for the use of the Committee on Financial Services
Serial No. 109-60
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25-373 WASHINGTON : 2005
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa BARNEY FRANK, Massachusetts
RICHARD H. BAKER, Louisiana PAUL E. KANJORSKI, Pennsylvania
DEBORAH PRYCE, Ohio MAXINE WATERS, California
SPENCER BACHUS, Alabama CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice Chair JULIA CARSON, Indiana
RON PAUL, Texas BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio GREGORY W. MEEKS, New York
JIM RYUN, Kansas BARBARA LEE, California
STEVEN C. LaTOURETTE, Ohio DENNIS MOORE, Kansas
DONALD A. MANZULLO, Illinois MICHAEL E. CAPUANO, Massachusetts
WALTER B. JONES, Jr., North HAROLD E. FORD, Jr., Tennessee
Carolina RUBEN HINOJOSA, Texas
JUDY BIGGERT, Illinois JOSEPH CROWLEY, New York
CHRISTOPHER SHAYS, Connecticut WM. LACY CLAY, Missouri
VITO FOSSELLA, New York STEVE ISRAEL, New York
GARY G. MILLER, California CAROLYN McCARTHY, New York
PATRICK J. TIBERI, Ohio JOE BACA, California
MARK R. KENNEDY, Minnesota JIM MATHESON, Utah
TOM FEENEY, Florida STEPHEN F. LYNCH, Massachusetts
JEB HENSARLING, Texas BRAD MILLER, North Carolina
SCOTT GARRETT, New Jersey DAVID SCOTT, Georgia
GINNY BROWN-WAITE, Florida ARTUR DAVIS, Alabama
J. GRESHAM BARRETT, South Carolina AL GREEN, Texas
KATHERINE HARRIS, Florida EMANUEL CLEAVER, Missouri
RICK RENZI, Arizona MELISSA L. BEAN, Illinois
JIM GERLACH, Pennsylvania DEBBIE WASSERMAN SCHULTZ, Florida
STEVAN PEARCE, New Mexico GWEN MOORE, Wisconsin,
RANDY NEUGEBAUER, Texas
TOM PRICE, Georgia BERNARD SANDERS, Vermont
MICHAEL G. FITZPATRICK,
Pennsylvania
GEOFF DAVIS, Kentucky
PATRICK T. McHENRY, North Carolina
Robert U. Foster, III, Staff Director
Subcommittee on Housing and Community Opportunity
ROBERT W. NEY, Ohio, Chairman
GARY G. MILLER, California, Vice MAXINE WATERS, California
Chairman NYDIA M. VELAZQUEZ, New York
RICHARD H. BAKER, Louisiana JULIA CARSON, Indiana
PETER T. KING, New York BARBARA LEE, California
WALTER B. JONES, Jr., North MICHAEL E. CAPUANO, Massachusetts
Carolina BERNARD SANDERS, Vermont
CHRISTOPHER SHAYS, Connecticut STEPHEN F. LYNCH, Massachusetts
PATRICK J. TIBERI, Ohio BRAD MILLER, North Carolina
GINNY BROWN-WAITE, Florida DAVID SCOTT, Georgia
KATHERINE HARRIS, Florida ARTUR DAVIS, Alabama
RICK RENZI, Arizona EMANUEL CLEAVER, Missouri
STEVAN, PEARCE, New Mexico AL GREEN, Texas
RANDY NEUGEBAUER, Texas BARNEY FRANK, Massachusetts
MICHAEL G. FITZPATRICK,
Pennsylvania
GEOFF DAVIS, Kentucky
MICHAEL G. OXLEY, Ohio
C O N T E N T S
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Page
Hearing held on:
October 20, 2005............................................. 1
Appendix:
October 20, 2005............................................. 47
WITNESSES
Thursday, October 20, 2005
Baker, Hon. Richard, a Representative in Congress from the State
of Louisiana................................................... 7
Jenkins, William O., Jr., Director of Homeland Security and
Justice, U.S. Government Accounting Office..................... 30
Maurstad, David I., Acting Director and Federal Insurance
Administrator, Mitigation Division, Federal Emergency
Management Agency, Emergency Preparedness and Response
Directorate, Department of Homeland Security................... 27
Taylor, Hon. Gene, a Representative in Congress from the State of
Mississippi.................................................... 10
APPENDIX
Prepared statements:
Kelly, Hon. Sue W............................................ 48
Davis, Hon. Jo Ann........................................... 52
Fitzpatrick, Hon. Michael G.................................. 54
Jenkins, William O., Jr. (with attachments).................. 55
Kanstoroom, Steven J......................................... 145
Maurstad, David I............................................ 132
Taylor, Hon. Gene............................................ 140
Additional Material Submitted for the Record
Independent Insurance Agents & Brokers of America, Inc., prepared
statement...................................................... 149
National Association of Professional Insurance Agents, prepared
statement...................................................... 152
National Flood Insurance Program: Estimate of Ultimate Paid
Losses from Hurricane Rita..................................... 166
MANAGEMENT AND OVERSIGHT
OF THE NATIONAL FLOOD
INSURANCE PROGRAM
----------
Thursday, October 20, 2005
U.S. House of Representatives,
Subcommittee on Housing and Community Opportunity,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:06 a.m., in
Room 2188, Rayburn House Office Building, Hon. Robert Ney
[chairman of the subcommittee] presiding.
Present: Representatives Ney, Harris, Pearce, Neugebauer,
Fitzpatrick, Waters, Scott, and Cleaver.
Ex officio present: Representatives Oxley and Frank.
Also present: Davis of Virginia, Kelly, Melancon, and
Blumenauer.
Chairman Ney. Today the Subcommittee on Housing and
Community Opportunity meets to continue its review and
oversight of the National Flood Insurance Program.
Specifically, today's hearing will focus on GAO's report on
issues related to the NFIP, its management and oversight by the
Federal Emergency Management Agency, FEMA, and FEMA's
implementation or reforms to the NFIP that were mandated by the
Bunning-Bereuter-Blumenauer Flood Insurance Reform Act of 2004.
Last year this committee spent considerable time and effort
on legislation to reauthorize and reform the National Flood
Insurance Program. The legislation includes provisions to
strengthen the operational and financial aspect of the NFIP by
providing States and local communities with an additional $40
million a year for flood mitigation efforts to try to help with
repeatedly flood-prone properties. It allows for increases in
flood insurance premiums on properties that refuse Government
mitigation offers.
While the Flood Insurance Reform Act addresses a number of
procedural problems with the NFIP, additional concerns were
raised during the deliberations on the legislation.
Incidental evidence showed that policyholders often did not
have a clear understanding of their policies. Insurance claims
often did not understand what they were selling or how to
process claims correctly. Many policyholders did not know of or
understand the appeals process, and many questioned the
adequacy of payments in the adjustment system.
The Flood Insurance Reform Act mandated the GAO conduct a
study on these issues. The study released this week concluded
that improvements are needed to enhance oversight and
management of the NFIP.
As evidenced by Hurricanes Katrina and Rita, floods have
been and continue to be one of the most destructive and costly
natural hazards to our Nation. During this past year there have
been three major floods in my district in the State of Ohio.
All three of these incidents qualified for Federal relief
granted by President's executive order, and recent flooding in
January of this year resulted in historic levels in several
local dams, and in Tuskares county three communities in the
district were forced to evacuate, which displaced 7,000 people
in a county out of 70,000.
I was obviously able to witness firsthand the devastation
when I toured the damaged properties in Tuskares and Guernsey
counties. Of course, we have colleagues who have witnessed
unbelievable devastation in their areas of the United States.
Today marks the fourth hearing the Housing subcommittee has
held since enacting the Flood Insurance Reform Act. Last week I
conducted two productive emergency management summits in
Belmont and Athens counties back home. Discussions focused on
the devastation of the Gulf Coast and how these recent
disasters have amplified many of the shortcomings in the
National Flood Insurance Program. It is critical we take the
next step forward and review the GAO report and find out why
there are so many stumbling blocks to the success of the NFIP.
The National Flood Insurance Program is a valuable tool in
addressing the losses incurred throughout this country due to
floods. It ensures that businesses and families have access to
affordable flood insurance that would not be available on the
open market.
Last year's Flood Insurance Reform Act achieved significant
reforms to this important Federal program. I look forward to
hearing from our witnesses today as we discuss how best to
implement the legislation, as well as determine whether new
reforms and initiatives are in order to complement the work we
accomplished last year.
I want to thank our witnesses this morning for taking the
time to share their testimony, their important testimony, with
this subcommittee, especially Chairman Richard Baker,
Congressman Gene Taylor. Also, I want to thank David Maurstad
of FEMA, who should be designated as an honorary member of the
Housing subcommittee for his numerous appearances here before
this subcommittee. I also believe Congressman Melancon may be--
oh, I'm sorry--is here to our right.
I also want to thank our ranking member, Maxine Waters, all
her work on this, and also the ranking member of the committee,
Barney Frank, and his staff. Mr. Reilly came to Ohio, has had
different hearings on disaster issues, along with our staff,
Tallman Johnson, Clinton Jones, and Cindy Chetti, who have
worked on this issue.
And I will recognize, without objection, the gentleman from
Oregon, Mr. Blumenauer, and the gentleman from Louisiana, Mr.
Melancon, will be permitted to participate in today's hearing.
And, I'm sorry, very important, the gentlewoman Jo Ann Davis
from Virginia. The gentleman from Massachusetts?
Mr. Frank. Thank you, Mr. Chairman. I appreciate the
diligence you have been showing in this effort to deal with the
terrible events that befell the residents of the Gulf Coast.
As people who follow this closely know, we actually
anticipated the need for changes in the Flood Insurance
Program. It was interesting afterwards to have people say,
``Well, okay with flood insurance, but you've got to do these
things,'' many of which had been done as a result of the
initiative of this committee.
The gentleman from Louisiana, with his knowledge of it, had
a major role in shaping this bill. There was a genuinely
bipartisan effort in the last Congress. Our former colleague,
Mr. Bereuter of Nebraska, and our current colleague, Mr.
Blumenauer of Oregon, worked together to do this. And we will
be talking, obviously, both about what can be done here, but
also--and I noted our Senate colleagues raised some questions.
Again, it was bipartisan. It was both the Senator from
Kentucky, Mr. Bunning, and the Senator from Maryland, Mr.
Sarbanes, who pressed for better implementation of some of the
things we put into the bill last year, including mitigation.
We are sometimes accused of just sending out money and the
legislative work we did last year clearly refutes that. And in
a bipartisan way, we and the initiative to come out of this
committee--and the chairman of the full committee was one of
those most responsible for it happening--we restructured that
program and put into it many of the safeguards, both
environmental and fiscal, that people wanted.
I was very pleased when that bill was being pushed that it
had strong support from the taxpayer groups concerned about a
better use of Government money and the environmental groups. So
there are some aspects of that bill that are not being
implemented. Obviously, we understand the focus right now on
the aftermath of Katrina, but that's only for the last month
and a half. And there is I think an obligation on the part of
those responsible to explain to us why more hasn't been done to
implement last year's bill and to give us more assurance.
Beyond that, I want to express my strong support for the
efforts that our colleague from Mississippi, Mr. Taylor, has
taken. And New Orleans, obviously, is a picturesque and famous
part of American culture celebrated in movies, and books, and
song, and has been the focus of a lot of attention,
understandably, but it is not the only part of the region that
was hit.
Mr. Taylor represents a part of the region in the Gulf of
Mississippi that was hit very hard. He has been absolutely
tireless from the very first moments in calling attention to
that, and working responsibly to try and get some aid for those
people he represents, and we are talking particularly about
people who don't have vast resources.
And again, as I said, people sort of saw the TV pictures of
the victims of this disaster in New Orleans. We have other
victims who deserve every bit as much attention, and Mr. Taylor
has been reminding all of us of that, and I was particularly
pleased to work with him on his legislation that would provide
some help for people who did not have flood insurance.
And I think to let people's--to let the situation rest
where people of moderate income, low income obviously, but even
people of moderate income whose houses have been wiped out, to
get no help whatsoever when their houses are wiped out through
events over which they had no control is a great mistake.
And I believe that we have the capacity to respond. I think
we can respond in ways that do not encourage future
irresponsible behavior. There were people who were badly
advised. There were flaws in the Federal program. I do not
think the moderate income homeowners of the Gulf Coast of
Mississippi ought to bear that burden, and we also want to
understand that by helping them, we also avert serious damage
to our financial system.
One of the things that I most fear, and I know many other
members of the committee share this, is a continued move in
this country towards larger and larger banks and a threat to
the smaller community banks. We need a mix. We don't want to
see the smaller banks and the credit unions forced out of
business.
If, in fact, the most responsible banker in the world, the
most responsible credit union official in the world whose locus
was in Mr. Taylor's district or in parts of Louisiana had made
home loans that were perfectly reasonable, he or she would now
find the situation where the bank's future is threatened, not
because of any error anybody made, but because of an entirely
unanticipated event.
And if we allow the individuals to go uncompensated, not
only do we have serious problems for them as individuals to
which I think we should respond, but we get systemic problems.
We will see bank failures. We will see credit unions go under
that cost the Government some money on the insurance front. But
even more negatively, it undermines our ability to keep this
network of community banks.
So, the legislation Mr. Taylor has put forward I think is a
very responsible way to provide desperately needed help for
individuals who have worked hard all their lives, did nothing
wrong, and found themselves in this distress, but also, as part
of our responsibility to the Banking Committee, averts a
further push towards the kind of excessive consolidation of the
industry, which is not a good thing.
Thank you, Mr. Chairman.
Chairman Ney. Thank you. Without objection, I have several
statements for the record: a statement of the National
Association of Professional Insurance Agents, a statement of
the Independent Insurance Agents, a statement of Representative
Jo Ann Davis, a statement of Steve J. Kanstoroom. Without
objection, it will be part of the record.
[The following information can be found on pages 52, 145,
149, 152 in the appendix.]
Any opening--Mr. Pearce, opening statement? Mr. Scott,
opening statement?
Mr. Scott. Very brief, Mr. Chairman. First, let me thank
you for the excellent leadership you are providing on this
issue, and I certainly look forward to hearing from Mr. Baker
and Mr. Taylor, of Louisiana and Mississippi areas that were
hit so impactfully. We have no better twosome in this Congress
that can deal with it and help us understand the magnitude of
the tragedy because they, indeed, were in the eye of the storm,
as were their constituents.
It seems to me we have two issues to consider when
reviewing flood disaster responses. The first is to determine
if flood maps are updated and accurate and if enough homes are
covered by the insurance.
The second issue is whether or not Federal agencies are
prepared to work with State and local authorities to plan for
and execute a disaster plan. FEMA has estimated that national
flood insurance claims for Hurricanes Katrina and Rita could
exceed $22 billion. This amount would surpass the total payout
since the program began 37 years ago.
Now we have Wilma that is now headed to Florida according
to the latest estimates of direction. It could change at any
time, however, but Florida seems to be directly in the path,
and it is estimated to be one of the most powerful storms ever
on record.
It is imperative that flood mapping be quickly updated in
all coastal communities while insuring that those homes
adjacent to flood plains have adequate protection.
Most of the ninth ward residents in New Orleans were not
required to purchase flood insurance since Federal flood maps
assume that these neighborhoods would be protected by the levee
system. There are concerns that many of these residents will
now lose their homes.
I look forward to the hearing. And, hopefully, we can
address some very critical questions. For example, should FEMA
be independent from the Department of Homeland Security? How
would you grade FEMA's ability to work with State and local
officials in flood map development? We need to elaborate on the
current efforts of the Department of Homeland Security, to work
with local communities to plan for disasters and terrorist
preparedness.
We need to determine are we finding that other communities
are not following through on their preparedness. These are very
critical questions for a very critical time in our Nation, and
I look forward to this hearing and hearing from this
distinguished committee. Thank you, Mr. Chairman.
Chairman Ney. Well, I thank the gentleman. The gentlelady,
our ranking member from California?
Ms. Waters. Thank you very much, Mr. Chairman. I would like
to submit my statement for the record and just briefly say that
it is not enough to say how frustrated I am with the lack of
support and protection for the victims of these hurricanes.
Mr. Chairman, you have held hearings where we have
attempted to get at vital information about the National Flood
Insurance Program. And I think that on more than one occasion
we have been misled.
And it appears that just as FEMA was in chaos following the
hurricane, not equipped or able or competent to respond in a
timely manner, now we are learning that the National Flood
Insurance Program appears to be not what some of us thought it
was. And many of the allegations that have been made about
adjusters, et cetera, appear to be true.
And so, I am going to let us get on with this hearing today
and have some questions to answer later. And I will submit my
statement for the record.
Chairman Ney. I want to thank the gentlelady also on her
work on this issue.
Mr. Cleaver has no opening statements. Mrs. Davis? The
gentlelady is not--Mr. Neugebauer?
Mr. Neugebauer. Well, just briefly, Mr. Chairman, I think
this is an important hearing. And one of the things I think
that we need to continue to think about is ways that we make
this flood insurance program an insurance program that works.
But I think what we do also need to understand is what the
limitations to a flood insurance program are. And one of the
things that I believe that we are going to have to do is go to
a risk-based system where we are in areas where there is a
higher risk for the kind of events that we have witnessed in
the past few months, that there may have to be a higher premium
for that.
Because certainly what we don't want--and we have to have a
system where there is participation and not the anticipation
that every time one of these events happens, that the Federal
Government is going to have to step up and be responsible for
the losses that occur. And I think that the perfect system is
one that, hopefully, maybe incorporates more in providing a
partnership with the Federal Government and the private sector
to determine what these risks are, and how to adequately build
a premium base that will support those programs.
But obviously, there is much more risk in a river rising in
certain areas than there is a hurricane wall that none of us
can foresee the surge that might happen during that time. So I
look forward to having some important dialogue about this
program.
Chairman Ney. The gentleman from Louisiana, do you have an
opening statement?
Mr. Melancon. No. I think anything that I would express
would be expressed by Mr. Taylor or Mr. Baker. Thank you, Mr.
Chairman.
Chairman Ney. Thank you. The gentleman from Pennsylvania,
do you have an opening statement? Thank you.
With that, we will move on. I just wanted to--did want to
say a couple of things. The ranking member, I think, was one of
the first non-Gulf Members of Congress on the scene in the New
Orleans area and in other parts of the Gulf, extensively
looking also at the shelter situation down there.
And also, the first hearing we had was requested by the
gentlelady, actually, from Virginia, Mrs. Davis, and we
appreciate you starting us rolling.
And I am going to move on right away. I want to say one
other thing, too, that I don't think the public knows. And I
know it wearing another hat, chairman of the House
Administration Committee. I just want to give credit to the
Members sitting here, the three Members from the Gulf, and the
other Members, both sides of the aisle, from the Gulf and their
staffs.
When this all happened, we extensively dealt with the
Members. If the staff couldn't get a phone call through, they
tried 900 more times until it happened. They wanted to make
sure they were there for the constituents, the Members and your
staff. They did a remarkable job under a very terrible
situation to make sure that they were there for your
constituents, as you all were. So I credit you for that.
With that, we will start with Mr. Baker, Chairman Baker.
STATEMENT OF HON. RICHARD BAKER, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF LOUISIANA
Mr. Baker. Thank you, Mr. Chairman. I want to express my
appreciation to you and the Members for your continuing
attention to these difficult subject matters.
As to your responsibility in House Administration, I
certainly want to acknowledge the extent to which you and your
staff went in trying to facilitate just the simplest of tasks.
Just communication was extraordinarily difficult. And your team
went well beyond any expectation in trying to assist us in
meeting our obligations. And for that, I am grateful.
I think to speak to this issue this morning, I want to
start with just a brief historical story to establish my
credentials on this matter. My dad is now a retired Methodist
preacher. Years ago, served a church in Baton Rouge for 10
years. And when I went to the church--I was 6 when we left--I
was 16, so I was affectionately known in the church as Little
Richard. That causes some confusion, I'm sure.
[Laughter.]
Mr. Baker. However, when my dad would meet with individuals
after our departure from the church, he ran into a lady, a
senior lady, who said, ``Well, Reverend, how is Little Richard
these days?''
And he gave the usual kinds of explanations about
legislature and elected to Congress, and so forth. And when she
heard, ``He is now a Member of Congress,'' she dropped her head
and said, ``Oh, he used to be such a nice young man.''
I think the flood insurance program and I enjoy similar
regard. And I am speaking here today in defense of the flood
insurance program. I would like to establish that when any
natural disaster affects any region of the country, the only
natural disaster which has a structured program where we
collect premium and pay out benefits is the flood insurance
program.
Whether earthquake, tornado, mudslide, fire, we simply
write checks out of the United States Treasury. Questions have
not been asked, ``How do we have budget offsets for those
expenditures?'' We respond because people are in need.
Since 1988, every dollar advanced to pay claims for the
National Flood Insurance Program have been repaid with
interest, with premiums paid by policyholders.
Now that doesn't mean that the system can't be made better.
Two years ago--Mr. Frank made reference to the reforms that
were adopted relative to repetitive lost properties. I will
admit, Louisiana was one of the contributors to a significant
problem. There was one property I know of where there were 21
claims submitted and paid. There is no excuse for that.
The reforms adopted 2 years ago went to great lengths to
eliminate abusive and inappropriate practices, and there are
still limitations in the program's implementation. But I will
say to you, Mr. Chairman and members, in principle, what the
flood insurance program provides is a well structured program
that operates as intended with room for improvement. There is
no other natural disaster that can lay claim to any such
structure.
Therefore, I find the discussion of whether we should have
a flood insurance program, that it's abusive or wasteful,
frankly, very inappropriate. Mr. Taylor, I know, has a remedy
for needs he has identified. I have my own program that I am
introducing today that addresses some needs.
Certainly we ought to have a discussion about how we can
improve on it. But the idea that this is taxpayer money flowing
out the door without accountability is simply not accurate.
Where do we go from here? One of the matters which I think
needs to be addressed is the current limitation on the line of
credit. As I indicated, if you have a rush of claims and there
is no cash in the drawer, you can go borrow money, which is
subsidized by the taxpayer--today, up to $2 billion.
As has been mentioned by members earlier, the expected
losses to be paid merely for Katrina are approaching--and they,
in fact, exceed--$20 billion. There will be a necessity to
increase that line of credit for borrowings to pay obligations
as they come due.
I think it appropriate when we are addressing the line of
credit that we also address the issue of the $250,000 limit.
For those not familiar with the aspects of the program, if you
choose to buy all of the flood insurance one can attain through
this program, the maximum you can get for your structure is
$250,000, and $100,000 for contents, for a total of $350,000.
As people on the lakefront of New Orleans are painfully
learning, who may live in a $1 million or $2 million or $3
million home, the flood insurance won't buy the lot back after
this disaster. And so, it ought to be made available on an
actuarial basis where a person can acquire whatever flood
insurance they think appropriate for the risk they face.
Enforcement. Louisiana is only second to Florida in the
number of policy holders who pay premium. We're about 42, 43
percent, somewhere in that range. I do not understand why
financial institutions do not mandatorily force place flood
insurance coverage when they issue a loan to an individual.
Let me, for sake of reference, bring to the committee's
attention the map dated March 1, 1984, for the principal area
known as New Orleans. There is a notation on this map. By the
way, all of this is--would be normally--in the flood zone. But
it's designated as Flood Zone B. There are a whole host of
flood zone designations which relate to the rate you pay, your
premium. All zone B areas are protected from the 100 year flood
by levee, dike, or other structure, subject to failure or
overtopping during larger floods.
March 1, 1984, Mr. Chairman. Why is it that a financial
institution extending hundreds of thousands of dollars of
credit would not take the fiduciary responsibility to require
flood insurance on those properties for which they are
extending credit? It makes no sense.
I think we should have a requirement that within a certain
number of miles of a coastal zone--from New York, which
experienced a hurricane in 1938, to Washington State--the
entire coastal area of the United States should be mandatorily
required to participate in paying premium to the flood
insurance program. That is the only way we can address Members'
concerns about repayment of lines of credit extended to meet
obligations of Rita, Katrina, and--God help us all--Wilma.
We all know they are going to come. We all know that
coastal areas are exposed. Why don't we address it and simply
say, ``Everybody is in the deal.'' That's what keeps prices
low. That's what keeps taxpayers from being unnecessarily under
financial duress. It's logical, defensible. I'm from Louisiana.
I live 8 feet above sea level. I can do this. The rest of the
Congress should be able to do this.
This past two weekends, we watched as New England
unexpectedly suffered extraordinary flooding loss and loss of
life. What is not generally described or known, outside the
100-year flood plain--everybody is familiar with the 100-year
flood plain. If you're in the 100-year flood plain, everybody
says you ought to have insurance. Twenty-five percent of all
the claims paid by the National Flood Insurance Program are for
properties outside the 100-year flood plain.
Now we can't simply say, ``Because you're outside the 100-
year flood plain, you have no obligation to protect your
property.'' We need to have better mapping and assessment. We
need to have an identification of risk and people obligated to
participate in the flood insurance program and assessed a
premium in relation to their actuarial rate exposure.
I will introduce today legislation to create a Louisiana
Recovery Corporation. The corporation will be empowered to
issue debt off budget, subject to approval by the Treasury, to
get us out of the recurring necessity to come to this Congress
and fight appropriations battles.
We cannot tell you today the cost for our environmental
remediation. We cannot estimate the cost to give people the
opportunity to move on with life. That information will develop
over years as we move forward with our redevelopment effort.
There is no local authority. The State government doesn't
have the ability. Fitch, Moody's S&P have all downgraded our
ability to issue debt. We're on a negative credit watch. It's
only a matter of time before our ability to sell debt
obligations in the capital markets will be so impaired it will
make no sense. We have to have the Federal Government's ability
to borrow.
I understand there is an obligation to each of you and your
constituents to be transparent and responsible for the money we
spent and, to the best of our ability, repay what we are
borrowing from the rest of the generosity of the Nation.
To that end, we should empower this organization to go in
and acquire large tracts of land, respecting private property
rights. If you want to take a cash settlement and move on,
fine. You're going to take a loss. So is the bank. The banks
are going to come in for a big hit on this. So are the
insurers.
If you want to stay with us, and live through the
redevelopment, and have your tract of land back when it's done,
fine. We're not going to pay you anything; you're just going to
be a partner in redevelopment.
If you would like to have a cash payment and have an option
of first right of refusal on the redevelopment of property,
that's fine too. We will give you that shot. And if you want to
come back and buy at market rate that tract of land, that's
fine.
If you don't want to do any of it, if you want to just sit
it out on your tract of land where you are today with no help
from anybody, that's your choice. You can do that too.
Respecting private property rights. There is not going to be
bulldozers running wild down the middle of New Orleans taking
people's property away from them.
At the same time, in order for a redevelopment to occur,
somebody has to be able to provide for levee restoration,
environmental remediation, basic infrastructure so we can have
large tracts of developable property made available to the
market.
Last week of this month, we will have the GSE reform bill
on the floor. One of the important assets of that bill is an
affordable housing fund. It will make available $500 million to
about $1 billion annually of affordable housing money for
Katrina/Rita victims.
This redevelopment plan will not be about making rich
people richer; it will be about rebuilding Orleans and the
surrounding area in a way which is a modern community that
affords opportunity for everybody, from subsidized housing,
multi-family, to giving those who have good fortune an
opportunity to reclaim some of their loss.
Mr. Chairman, I hope you and members of the committee will
carefully review the legislation known as the Louisiana
Recovery Corporation, and in concert with your ongoing
examination of the flood insurance program, in concert with the
massive redevelopment requirements that are going to be needed
for Mr. Taylor, myself, Mr. Melancon--and I want to get that on
the record; it's Melancon--that we are going to be around for a
long time asking for a lot. We know it.
We need to be held accountable; we need to be subject to
reporting standards. We want to do this the right way.
I thank you, Mr. Chairman.
Chairman Ney. Thank you.
The gentleman from Mississippi.
STATEMENT OF HON. GENE TAYLOR, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF MISSISSIPPI
Mr. Taylor. Mr. Chairman, thank you very much for letting
me appear before your committee. And on a private note, as
someone from possibly the most affected area by the storm, I
want to thank you in your capacity as the chairman of Oversight
for allowing me to hire, within the limits of my budget, a
couple of extra staffers because of the unprecedented amount of
casework that has been generated by this storm. I thought that
was incredibly generous on your part, and I think it should be
noted by my colleagues.
Mr. Chairman, I'm going to take about as long as Mr. Baker,
so please indulge me. It's going to take--this is of such great
importance to so many people, that I just can't say it in 5
minutes. I do think it's important to walk my colleagues
through this.
Like most of you all during the August break, I took a
couple of days off. Like most of you all during the August
break, at night I gave speeches. But on the nights when I
didn't give speeches, I made shutters. I bought $2,000 worth of
plasticized decking. No telling how many hundreds of dollars
worth of stainless steel screws, deck caulking, and every night
I made at least a pair of shutters, and many nights as many as
three.
On the weekends, when my son wasn't working, we installed
those shutters. I come from hurricane country. Preparing your
house for a hurricane is not only a part of your life, it's a
part of your job as a dad, to show your son how to do it, just
like my dad showed me.
On the day of the storm, we actually finished installing
the last pair of shutters, about 3:00 in the afternoon. The
wind was kicking up to about 30 knots, and you can imagine how
much fun it is being on a second story ladder trying to hold a
drill in one hand, a screwdriver in the other, and a 50-pound
shutter in your third hand, while your son is helping you.
We got them all up. And then the routine is you move
inside, and you start taking your furniture--none of which
would be fancy by your standards--but you take the least
desirable furniture, and you put it on top of the kitchen
counter. You take the stuff that's a little bit better than
that, you put it on top of that. You take the stuff that you
might have inherited from your folks, and you put that on top.
Again, I live in a place that's only 14 feet above sea
level. But in the 28 years that I have lived it, I have never
lost a shingle; it's never flooded. But I do know that in
Hurricane Camille it took about 2 feet of water, and that in
Hurricane--I'm sorry, about 4 feet of water. And Hurricane
Betsy took about 2. We live in an area that comes to accept
that.
But the point that I'm trying to make in all this is there
are some cynics in this town who would have you believe that
somehow the people of Mississippi weren't prepared for the
storm, that they didn't take the steps necessary to protect
themselves. And that's shear nonsense.
The people of Mississippi--what happened in my home was
going on in every home in south Mississippi simultaneously.
Fathers and sons were buying plywood, boarding up their
windows. They were taking the family possessions and trying to
get them up off the ground if they thought their house was
going to flood, or if they thought the roof was going to get
blown off, or trying to find some common ground, as I did, when
you imagine that both things could happen. And you want to take
those things that are precious to you and try to protect them.
My wife, simultaneously, was taking the family photos,
putting them in Rubbermaid tubs, and taking them with us when
we left. She had learned that lesson because both of her
grandparents lost everything they owned in Hurricane Camille,
including the family photos. And so, again, you learn to cope
with this. It's just a way of life. It's like a disease. You
try to prevent it, but you know if it comes you take the
necessary steps to minimize it.
So, for those people who were saying that somehow the
people of my district, or any district, are trying to game this
into getting rich, don't kid yourself. Every one of us would
rather have our houses back. All we're trying to do is help
make people whole.
Historically, it is a place where people stay for a long
time. My family has been there for 53 years. We're relative
newcomers, but the old timers can tell you about the storms in
the early 1900s. They can tell you about the 1947 hurricane,
the storm in the early fifties, Betsy and Camille. They can
tell you about lashing a wooden skiff behind the house so that
when worse came to worst, you pulled the skiff up, you put your
family in it, and you went inland.
In the case of my neighbor, Larry Larue, if it was a mild
storm like Betsy, he went to his daughter's house a quarter of
a mile away. If a bad storm like Camille, he went to his
brother's house a half-a-mile away by boat. Again, you deal for
this. You know it's coming, and you take the necessary steps.
What I am asking today, though, is to help those people who
could not have envisioned this storm being as bad as it was.
You see, houses that made it through Betsy, houses that made it
through Camille--like mine--no longer exist. They are gone.
There is nothing there but a line of debris.
And you could say, ``You should have known better,'' but
these places were there, in many instances, since the Frenchmen
landed in 1699. They were also backed up not only by local
knowledge, but by the knowledge that our Nation provides for us
the Federal Flood Insurance Plan.
One of the things I would like to point out is that there
will be some people who say that, ``You should have known your
house was going to go, you should have bought flood insurance.
And if you didn't, shame on you.''
This is a Federal flood insurance map drawn by Government
experts in Long Beach, Mississippi. This area fairly close to
the water is the flood plain. As Congressman Baker pointed out,
if you live in this area and you go to buy a house, your banker
is going to tell you you have to have Federal flood insurance.
They won't guarantee your loan if you don't have Federal flood
insurance. So everyone in this area buys it. I was one of those
people who lived in an area that required Federal flood
insurance. I had it.
This is the map that another Government agency, the Corps
of Engineers, tells us--the exact same block. Remember? One was
very close to the water. This is what the Corps of Engineers
tells people south of Mississippi that in the event of a bad
storm, ``All you guys need to get out of here.''
So, we have the National Flood Insurance telling folks
basically just down here you need to worry about a storm, but
the Corps of Engineers telling you all the way up here--now
this is about 10 miles--``In the event of a bad storm, you need
to get the heck out of there,'' based on Government
information.
This is what happened in just one of the towns I represent.
This is Long Beach, Mississippi. Now it's a little strange
looking at it from the sky, but it's the same map as the first
one. This lighter stuff that you're seeing is debris. It was
people's houses. You don't see any big chunks of houses because
they have been just broken up into small pieces again.
What you will find very interesting is, again, that flood
line of where you are required to have Federal flood insurance
because the American experts told them so is about right here.
What this is is a 100-foot-long barge that at light draft draws
3 feet of water, but this one was full. So it draws over 6 feet
of water. It's several blocks inside where the Government--I'm
sorry, it's several blocks above where our Nation's experts
told these people they had to have Federal flood insurance.
This was a casino barge. Used to be down here floating.
It's now on the wrong side of Highway 90. This is another barge
on the wrong side of Highway 90. The storm surge, as you can
see--this is where it ended; this is where the pieces of
people's houses ended up, well beyond what our Nation's experts
told them the storm would take them to.
Now why do I say all this? The point is not to help me,
because I had flood insurance. It's to help those tens of
thousands of south Mississippians and south Louisianans who
lived outside of the flood plain that our Nation's experts told
them they should expect, who their bankers, like Congressman
Baker just told you, said, ``Look, you're outside the flood
plain; you don't need flood insurance, no use wasting your
money.'' And it is relatively inexpensive.
But I will take it a step further. In August, the Consumer
Federation of America, the folks that are supposed to be out
looking for us, helping us out, actually issued a press release
talking about ways that people waste money on insurance. One of
the things they listed in the way that people waste money on
insurance, one of the examples was those people who live
outside the federally-mandated flood plain who buy flood
insurance.
So when you say that maybe these guys should have known
better, I hope I have provided you with some examples of why
they don't. And there is probably some people who say, ``Well,
they are just dumb Bubbas.'' You know? ``Who cares about
them?''
Well, Jerry St. Pe, the former president of Ingalls
Shipbuilding, 13,000 employees, builds one half of our Nation's
surface fleet, isn't a dumb Bubba. Ricky Matthews, the
publisher of the Gulf Publishing Company, his son Harold, is
not a dumb Bubba. U.S. District Judge Lou Guirola, appointed by
this administration, is not a dumb person. My predecessor, Cy
Faneca, one of the smartest attorneys in south Mississippi, is
not a dumb man.
What all these people have in common? They lived outside
the federally mandated flood plain; they did not have flood
insurance; and they are getting no coverage. Now, why are they
getting no coverage? Every one of them had wind insurance,
every single one of them. But if you read down in that wind
policy, there is a provision in there that says if there is
wind-driven water, they don't pay.
So, if the wind knocks a tree into your house during the
storm, you're okay. If the wind blows your neighbor's house
into your house during the storm, you're okay. But if the wind
generates a 30-foot wall of water that caused the kind of
devastation--that's just in Long Beach; there are actually
places worse than Long Beach--a 30-foot wall of water that
picked up the Bay St. Louis bridge and threw it over in the
bottom of the bay, you're not covered.
I'm trying to make those people whole. Like the rest of us,
they probably had credit card bills. Like the rest of us, they
had mortgages. But now, unlike the rest of us, they suddenly
have a house that's either uninhabitable, at best, or gone, at
worst. And their insurance company is saying, ``We're not going
to pay you a dime because that was water and not wind.''
There are a couple of ways we could address that. We, as a
Congress, don't make the sun rise and set. But we, as a
Congress, do decide what to call the number of--the time of day
that that sun comes up and the sun goes down. We call it
Daylight Savings Time.
We, as a Congress, could say to the insurance companies,
``That was wind-driven water, that 8 inches of rain don't cause
a 30-foot flood of water, and you are going to honor those
insurance claims.'' I'm not so sure that my colleagues are
willing to do that.
Second thing we could do is just come up with some money,
just give them a grant. Again, I got here; I got elected on the
day of the San Francisco earthquake. One of the first things I
did was to vote to help those people. Since that time, there
has been a big flood in the Midwest. I voted to help those
people. Hurricanes in South Carolina, in Florida, Texas, I
voted to help those people.
So we could just vote to give them some money. Or we could
take a third step. And we could allow those people--prudent,
smart people, who lived outside the flood plain, who weren't
required to have flood insurance, but now find themselves in
this horrible bind--we could allow them to pay 10 years back
premiums, take a 5-percent penalty, and then file a claim up to
the value of their wind coverage, or the $250,000 that Mr.
Baker told you about, whatever is less, and file a claim as if
they had been in the program all along.
Furthermore, much like Congressman Baker is telling you
about, we would then require them to stay in the program as
long as they own that house so that they can't game the system,
get a check today, tell us goodbye tomorrow, and so that they
don't file the multiple claims that he is concerned about. And
I share his concerns.
That's what the legislation does. I am very fortunate to
have about 40 of my colleagues co-sponsor it. I am very
fortunate to have Congressman Frank help us put this together.
It has been endorsed by the Mississippi mortgage lenders; it's
been endorsed by the Mississippi bankers. I would hope it would
be endorsed by you.
You know, basically what it's doing is in a time of
severe--and believe me, you guys have been great. Every one of
you, at one time or another, has walked up to me since the
storm and said, ``What can we do?'' This is something you can
do.
I am asking basically the same thing we asked for as
congresspeople. We got here because we asked other people to
help us, and we got here--and the other thing we got in our
lives is every one of us got a second chance. I am asking to
give the little league coach, the preacher, the people who have
invested in south Mississippi a second chance because if they
don't get it, tens of thousands of Mississippians will have
their mortgages foreclosed. We can sit back and do nothing, or
we can help them. I am asking you to help them.
Thank you, Mr. Chairman.
[The prepared statement of Hon. Gene Taylor can be found on
page 140 in the appendix.]
Chairman Ney. Thank you. I want to thank both gentlemen for
your very compelling testimony. And I will turn--are there
questions of the members? Gentlelady from California?
Ms. Waters. Yes. First, let me just say to the Members
representing these areas that you are absolutely correct about
the feeling of your colleagues about what you are going through
and what your constituents are going through. And we certainly
appreciate each--everything that you do to try and make your
constituents whole, to try and help them. This has been a
monumental disaster. We all recognize that, and we want to
help.
I am listening to the bills that you are proposing, and of
course I want to take a close look at them to see if there are
more questions that I may want to raise with you, starting with
you, Mr. Baker.
I want you to know that even though you describe this as
not being taxpayer money, that we care as much about
constituents who pay premiums as we do about just taking the
money from the Federal coffers if there were no premiums
involved. We believe that these people should be respected, and
we should do everything that we can to help them.
When you talk about creating a new authority, does this
mean that this overrides the city role and the State role in
helping to bring about some relief and some rehabilitation? How
has this idea come together? Are all of these entities involved
in some way? Who is the appointing authority, and who will run
this authority? Who will sit on this authority?
Mr. Baker. As you are aware, Mayor Nagin has appointed his
commission; Governor Blanco has appointed her commission; the
President has said he would like to see the redesign of
communities adversely impacted be built from the bottom up,
meaning local community, homeowners, elected officials, local
planners come up with the ideas of how they would like their
community to be restructured.
The proposal that I am offering is only the mechanism by
which we pay for whatever it is the local community decides
should be done. Public hearings, involvement--as I indicated in
my testimony, if an individual doesn't want to participate, you
can stay right where you are with whatever asset you have got,
and you are outside the process. If you want to take money and
move on, we provide that option. If you want to be a partner in
the development, we provide that option. If you want to take
money, and wait and see, and come back and buy in later, we
provide that option.
This is a homeowner-sensitive plan where homeowners decide
what should be done with their property. We merely provide
mechanisms for them to have choice. It does not require that
anyone take any step at all.
But when you are very pragmatic about the problems we face,
if you look at Mr. Taylor's community where there is no fire
station, there is no police department, there is no school,
there is no bakery, there is no daycare, who goes in first?
We have to have levee restoration first, environmental
remediation second, to get the bad stuff out, and then we need
to prepare large tracts of land for development to occur. The
plan can be generated at the local level. The debt that will be
issued will be approved by the Treasury.
The commission, which--will be a presidentially-appointed
commission with the Governor submitting names for positions on
the commission to be appointed by the President, and it's the
meeting of what I call taxpayer accountability to your
constituents with local planning saying how we would like to
have resources deployed, done in the full light of day where
everybody can understand where their stake is in the future
development.
It is not an attempt to take anybody's property away from
anybody.
Ms. Waters. Is the debt scored against the budget?
Mr. Baker. No, it is not. And let me also quickly add that
if this tract looks like this table, and it's clean, and we
have a plan developed by the community, and we have 10 guys who
come in and submit proposals, then the commission can accept
which proposal they think makes the most sense, not just from a
taxpayer view, but from a community view.
So if a guy has got green space, he's got all sorts of
community services involved in his proposal, that's the
proposal we take, and that's the taxpayer take-out. They buy
the land back from the commission for their development
purpose. So that's where the taxpayers get some relief.
This is different. We have never done it this way before,
but there are models. We have had three different Government
agencies in our history which have been real estate acquisition
and disposition entities, and this is modeled after those.
Ms. Waters. But a little aside from this--and if you will
bear with me, Mr. Chairman--I had not intended to ask this
question, but because I am so deeply involved in the issue of
eminent domain, I want to ask it of you now.
As you know, the Supreme Court decision in Callo basically
allows for the taking of private property for private use.
Would you support efforts that are being put together here in
Congress that will protect those homeowners from having their
property taken for private use, private property for private
use?
Mr. Baker. Certainly. And as I said at the outset, if an
individual chooses not to participate, wants to take their
land, as it is, without any----
Ms. Waters. That's okay. That's fine. I got that.
Mr. Baker. And secondly, the only utilization of the
authority of eminent domain would be if you decide to sell, and
if you are negotiating price--and keep in mind, you have
decided to sell, and you want to move on--that a dispute as to
value will enable us to take property and then litigate value
in court so the development may proceed.
But it is only after you decide that you want to dispose of
your asset that the right of eminent domain may be deployed.
And it comes after a very extensive process. But as to
utilization of an individual's property----
Ms. Waters. In the taking of land for a public purposes----
Mr. Baker. Correct, I understand.
Ms. Waters.--fair market value is decided. What would be
different in this situation that you are describing?
Mr. Baker. Well, only that the individual thinks the fair
market value is different from that established----
Ms. Waters. But that's not how it works in eminent domain
for public purposes. An individual may ask $1 million for a
$200 piece of property, but fair market value ends up ruling
the assessments that are done.
Mr. Baker. You do have a judicial right to dispute----
Ms. Waters. Yes.
Mr. Baker.--to go to court----
Ms. Waters. Yes.
Mr. Baker.--to litigate that value. And that's all that I
am saying. While that litigation dispute is ongoing, you cannot
then hold up the recovery of a community where your property is
essential for that public purpose to proceed.
Ms. Waters. So you would support, under some circumstances,
the taking of private property for private use?
Mr. Baker. In this case, it's taking a private property for
a public use. The restoration of communities is a public use.
If I were going to take your property and turn it into a
casino, I would have a problem with that. If I want to take
your property and turn it into a city, I think that's a public
use. What we are doing here is restoration of cities.
Ms. Waters. Well, that is going to be an issue that a lot
of people would have to take a very close look because the
implications are so great, and we--this is a great opportunity
to watch and see what happens, not only with that Supreme Court
decision, but what we are able to formulate here, as public
policy, to deal with that particular issue.
And finally, let me just ask you some questions about
mapping because you are very knowledgeable about the flood
insurance program, and one of the big complaints, as I remember
it, is that the mapping is outdated, that it did not take into
consideration, often times, the flood plain areas, et cetera,
et cetera.
And if that is true, does Government bear some
responsibility in a very special way if people thought they
were not at risk because of the outdated mapping or the
incompetent mapping in these areas?
Mr. Baker. You are correct. A flood is an animal. It
changes shape every day. If you are living in a community that
historically had no flooding problem and there is a development
above you in the flood plain--a shopping center where now you
have concrete where there once was grass--if downstream
maintenance by another political subdivision has not kept pace
and there is growth in the drainage outlet so you have more
water coming down more quickly with an inhibited ability to
drain water, historically, that got out, in consequence is the
person in the middle of that pipe gets flooded.
It's not of their own making. It's not even within their
political jurisdiction. But the consequence is water is in
their home.
The mapping really needs to be done almost annually because
the dynamics of development and the inhibitions to drainage are
continually changing. We have snapshots. And we say, ``Because
you look like this, in March of 1984,'' or whatever the date
might be, that determines whether or not you are compliant with
the rules. That is a very unfortunate system.
Given our technological capabilities today, it ought to be
an annual assessment requirement. At least a fly-over with
aerial photography----
Ms. Waters. Will that be reflected in your legislation?
Mr. Baker. My legislation only deals with the recovery of
the----
Ms. Waters. It does not deal with the mapping problem?
Mr. Baker. That's correct.
Ms. Waters. Okay. One more--this is--I'm so sorry.
Mr. Baker. I've got one answer left.
Ms. Waters. I beg your pardon?
Mr. Baker. I said I have one answer left, so let's----
Ms. Waters. No, I bet you got a lot. I've never known you
not to have an answer.
[Laughter.]
Chairman Ney. Let's just compromise, one question and one
brief answer.
Ms. Waters. Well, maybe I don't have another question. So
you can reserve that answer.
Mr. Baker. I will save it for next time.
Ms. Waters. No, you give it to somebody else. I know you
are just waiting to do it. Okay, thank you very much.
Mr. Baker. I thank the gentlelady----
Chairman Ney. If there are no further--Mr. Neugebauer?
Mr. Neugebauer. Thank you, Mr. Chairman. I was down in New
Orleans last Sunday and saw the tremendous devastation, not
only just in the New Orleans area, but then we flew out to the
LaFayette area and flew over the rural areas. And you know,
we've got people who have lost all of the infrastructure that's
necessary to carry on their agricultural activities.
I think in some ways I associate myself with both of your
remarks because one is the frustration that we have insurance
companies that are carrying insurance in that area, and yet
they have excluded, you know, maybe the greatest risk in those
storms.
I know that, from a home-building standpoint, being a
former home-builder, we have done a lot of innovation as far as
building new structures and buildings to where they are able to
sustain the high winds of hurricanes. And so, from a wind
standpoint, we have been able to mitigate a lot of the damage
that occurs from the wind.
But I almost think, Chairman Baker and Congressman Taylor,
I mean, one of the things we may need to look at is coastal
insurance and not just hurricane insurance or flood insurance.
But maybe what we need to look at--and I agree with what the
gentleman said about the technology today--we have the ability
to fly over those areas, digitize them, and then model what
could occur in certain kinds of storms.
And certainly we're not going to be able to model every
storm that occurs, but I think we can do a better job of
modeling that.
Then, I think we've got to take that modeling data to the
insurance industry and say to them, ``Let's come up''--and I
think also to allow people to carry coverage that the risk
they're taking, that if I'm going to go build a $1 million home
on a beach area, that I am responsible for covering the risk
that I am taking. But we have to provide a product for them to
cover that risk.
And I have dealt with flood maps, and they are easy to
amend. And basically, what we're talking about is rising water
in a rainstorm, most of the time of just falling rain or rising
water in--from other drainage areas.
But I think one of the things that's not in place, and
what's so terrible about that, is that we have got people in
three States now waiting to see what the United States Congress
is going to do so that they can get on with their lives.
Where if in place they had a coastal coverage, it's a
question of adjusters coming out and saying, you know, ``Here
is--you have sustained a loss, and here is your check,'' and
then people can make the decisions that they need to make to go
on with their life.
Chairman Baker, I like your idea because one of the things
that struck me when I was in New Orleans, being in the land
development business, is that what needs to happen is there
needs to be a market-driven activity developed into that plan.
We can't assume that everybody is coming back to that location.
And there may be areas that are not going to be adequately
protected in the future, and those areas will have to be dealt
with.
I want to look more at your plan, but I do like the fact
that it provides a basis for some private activity. I think
that if we send a signal to those States that the Federal
Government is going to come in here and try to fix all of this,
the private sector will stay home. I do not think they will
participate.
But I think if we provide an adequate environment where the
private sector can come and participate, where we have then a
plan in place, or a coastal coverage in place, where if I'm
going to come back in to New Orleans, or going to come back in
to Mississippi, that--and I'm going to build that home--that if
I build it, I can cover the risk that I am taking of building
that.
So I think a multi-faceted plan has got to really think
coastal flooding, and not just certain kinds of storm surges,
but what happens in these catastrophic situations and with the
understanding to the insurance industry that we can't cover
every risk. There are just certain things that happen. I mean,
who knew that 9/11 was--we were going to be worried about
airplanes flying into buildings?
But I do believe today, in some cases, the flood insurance
program does work. But I think what we have seen in the coastal
areas is that we do not have an adequate one. And it has got to
be one--and as you said, Chairman Baker--where we encourage
participation.
And you can do that in two ways. You can in the quality of
the product, but I think you also have to say to Randy
Neugebauer that, ``If you come and build that million dollar
house on the beach, and you don't cover the insurance, it's
your risk, and you're not going to ask the American people to
take that risk for you.'' And I think that's a fair thing.
So, I look forward to having some meaningful debate with
both members because I think we have seen a hole in the system
that we do need to address.
Mr. Baker. I thank the gentleman, I just want to make a
brief response in that in my capacity as chairman of capital
markets, which has jurisdiction over insurance matters, we will
have a very thorough examination of the practice of how we
address the exposure and the risk.
As insurance is constructed, you spread risk across a broad
number of participants on the belief that, ultimately, only a
certain number of people will make claims and, therefore, it is
actuarially sound.
Mr. Neugebauer. That's right.
Mr. Baker. Today, we have a concentration of loss without a
broad distribution of premium payers. And I think it's pretty
evident one of the remedies that might be pursued.
Secondly, a discussion going forward about wind-driven
water versus wind-driven trees is a pretty intriguing one. And
the difference during the storm, if your house burned down you
got the face value of the policy. If you bought more insurance
than the loss, and it burned, you get the face value. If it's
wind-driven, you get actual loss; and if it's flood, you get
$250,000. I don't care what you want to buy. There is no logic
to that insurance strategy.
And so, we need to have good public discussion, and going
forward, talking about how--the risk people face, living in
coastal areas.
And the last point. People have to live in New Orleans.
Your home heating oil bill will reflect that this year. Your
price at the gas pump will reflect it. If you are a Midwestern
farmer exporting corn or grain, 65 percent of that goes through
our ports. If you like seafood, 32 percent of the Nation's
seafood--I mean, fir, for goodness sakes, comes out of
Louisiana. I mean, I didn't know that.
We are a big producer of matches. Where did that come from?
This area is economically essential, and people are going to go
where the jobs are. Therefore, people are going to live next to
the coast and have this risk, and we need to have an adequate
insurance net to keep a catastrophic loss to the American
taxpayer.
Mr. Taylor. If I may?
Chairman Ney. Mr. Taylor?
Mr. Taylor. To your point--and I guess I'm a lot closer to
this than I wish I was, since I'm one of those people whose
house now looks like that debris line--what's really
frustrating is--and I will point to myself--when the agent came
to what was my house, walks around a piece of tin roof that's a
half-mile back, piece of slate floor over here, sink is quarter
of a block over that way.
And what they do is they say, ``Well, we're prepared to pay
on your flood insurance,'' to which I reminded them that's
mighty generous of them. ``That's Federal money, not''--I won't
name the company, ``--not your money.''
He says, ``Well, we're not so sure about this wind
policy.'' What really tens of thousands of people are seeing
now, despite the full-page ads being run by the insurance
industry saying, ``We're there for you,'' is the insurance
industry really trying to find every reason that they can not
to pay the claim.
And it really is the little individual down on his luck,
worst of circumstances, out of a house, out of a job, still got
that mortgage to pay, and the great big insurance company
saying, ``And by the way, where is the evidence for you to
prove that it was water and not wind, and wind and not water,''
because they're trying to play it both ways.
One of the things that I would hope would come of this--it
was after Hurricane Camille, the devastation of Hurricane
Camille, that this Nation started the Federal Flood Insurance
Program so that people could pay to mitigate their own risk,
those people who live in areas that are going to have
hurricanes.
But what we have seen is that when you leave a loophole,
the smart guy is going to figure out a way not to pay. If the
private sector doesn't step up to the plate--and I will leave
that ``if'' there--then I think we, as a Nation, are in the
business of looking out for people.
And if the private sector won't do it, then I think we, as
a Nation, have a responsibility to do it. And maybe it
shouldn't be called flood insurance; maybe it should be called
natural disaster insurance so that we, as a Nation, aren't
trying to find a reason not to pay people claims, people who
have paid their premiums faithfully for 10, 20, 30 years. Maybe
we, as a Nation, will treat them a little bit better.
And by the way, Congressman Baker is exactly right. We, as
a Nation, doing a pretty good job of paying our claims on the
flood insurance program. Yes, the losses are limited to a
quarter of a million dollars--and again, in a lot of places
that's a lot of money. For some of these newer homes that have
been put up in the past few years, that doesn't begin to pay
for them. And certainly, raising the cap absolutely is
something we need to look into.
But the other thing is, if the private sector isn't going
to treat the people of Mississippi, of Louisiana, of Texas, of
Florida, South Carolina, wherever it occurs--80 percent of all
Americans in the next 50 years are going to live within 50
miles of the coast. And if the private sector is not going to
step forward and treat them properly, as someone who has voted
for almost every single tort reform measure that has come
before this Congress, I will be the first to say if they're not
going to do their job, then I think our Nation has to step up
and do it.
Chairman Ney. I want to thank you. I want to also remind
members we can continue to question, ask questions of the
members. We have a vote at 11:45. We do have an, I think,
important panel with Mr. Maurstad and Mr. Jenkins, but again,
if you would like to ask questions--gentleman from
Massachusetts?
Mr. Frank. Let me first yield to the gentlewoman from
California.
Chairman Ney. All right.
Ms. Waters. Thank you very much, and I will be quick with
this, and I would like to ask both of the members if you are
willing to support the cost of what you are advocating even if
there are no offsets, as it has been discussed by the
administration--because I think you have good ideas--when you
establish a commission, for example, it costs money. And some
of the other aspects that you can't enough determine now will
cost money.
And I am feeling very strange by the rumblings that I am
hearing that we can't pay for making these citizens whole and
taking care of this problem unless we find some deep cuts in
other places that offset. How do you feel about that, and are
you going to stand up for your constituents even if it costs
money to do so that you can't find offsets for?
Mr. Baker. I come to agreement with you, Ms. Waters, and
from a slightly different perspective. To a great extent, I am
so overwhelmed by the Nation's generosity, private and public
dollars that have been made available to us; we have not been
the recipients of that kind of assistance before.
But you have written one check. How do I come back to you
and say, ``I'm going to cut your programs and make you pay
twice?'' I'm asking you to make two commitments to me. I'm not
going there.
Now, I don't know what the thinking is. The plan I'm
putting forward has a provision for the sale of property at the
end to get taxpayers some money back. I feel I've got to do
that. I feel we need to be very transparent, very accountable,
show you where every dollar goes, and if you find something
that's wrong, let's correct it. That's the way we--at least I
believe--we should conduct ourselves in this disaster.
Chairman Ney. Mr. Taylor?
Mr. Taylor. Ms. Waters, I--my vote sent over close to 2,000
young Americans over to Iraq to die. My vote also sent billions
of American dollars over there to build schools, build roads,
build water lines, build sewer lines. I didn't ask for an
offset to help the people of Iraq. I'm not going to ask for an
offset to help the people in Mississippi, Louisiana, or Texas.
Ms. Waters. All right. I yield back to the gentleman from--
--
Mr. Frank. I thank the gentlewoman.
Ms. Waters. Thank you.
Mr. Frank. And let me just say that I am impressed by the
dignity, as well as the moral seriousness, of both answers, and
I hope that it becomes the public policy.
I would just say that the gentleman from Louisiana, he has
also been in the forefront of our effort--because one of the
things we're going to have to do, and obviously there is room
for the private sector, but when it comes to building housing
to be inhabited by people who are $40,000, $30,000 a year in
income and below, there should be no way that's going to be
build without some public--some other source of funds,
particularly in an economy where people have lost their jobs
and have lost what they had.
So I think that makes it all the more important to pass the
Affordable Housing Fund, and the gentleman from Louisiana has
been working diligently on that. And I hope that next week we
can get that through, and that would be another source of
money.
Beyond that, I just wanted to ask Mr. Taylor--and I must
say this has now started to hit me. People may have been
reading or watching on television the story of a dam in
Massachusetts that is on distress. It's in my district, in the
city of Taunton. I was up there yesterday, along with my
Senators bringing our considerable engineering expertise to the
job and maybe a little money as well.
But--and it was pointed out to me by Mr. Riley on my staff
that, you know, one of the problems is, I guess, if you live
behind the dam, you don't have to get flood insurance. I've got
people, it now turns out, in my district who may be facing
flood damage who aren't insured. And one of the things I will
do as of next week when this crisis has passed is to do
something that I wish I had thought of before, which is to
begin to tell people, ``You better buy flood insurance, even
though it's optional.''
But let me ask Mr. Taylor, because that's something for the
future. But for those people he is talking about--and I know
there is some reference to million dollar homes, they're doing
this--how many million dollar homes in your district are we
concerned about, Mr. Taylor?
Mr. Taylor. Again, Mr. Frank, I hope I have made it clear--
I'm first to admit I'm bad to mumble--I hope I made it clear
we're only asking in the bill that you and a number of others
have helped me put together to pay up to the amount that people
had insured themselves in the wind pool, or a quarter of a
million dollars, which is the existing limit in the Federal
Flood Insurance Program, whichever is less.
Mr. Frank. Thank you.
Mr. Taylor. If someone only thought enough of their place
to insure it for, for example, $160,000 in the wind pool, there
is no reason for the taxpayers to insure it to the----
Mr. Frank. All right, then let me ask you this. And I do
think--and you've done this, and it's painful, but I--and we
often, when we are focused on legislation, talk about what
people think will be the problems if we pass it.
If we do nothing, if we don't pass the bill that you have
sponsored, that I'm proud to co-sponsor, or we do nothing else
to deal with the situation and the people whose housing losses
will not be covered--and there will be lawsuits and things, but
I'm not optimistic, I must say, and you've said the notion of--
likelihood of us passing a bill that makes that decision about
what coverage is, I think, is even less likely than your bill--
if there was no congressional action, if things don't change
and the current situation doesn't change, what happens to the
people in your district?
Mr. Taylor. Well, again, I am very appreciative that the
President of the United States has been down to the district
probably five times. I'm very appreciative that many of my
colleagues have taken time out of their busy schedule to go
see. Because even though you can see it on television, you
really don't get a grasp for just how bad that is until you
stand and look at that mountain of debris.
The likelihood that tens of thousands of south
Mississippians will lose their houses as a result of this is
extremely high. The President's plan calls for tax breaks for
people who come in from outside, invest in places like these
down in Mississippi, and then after they fix something up and
sell it high, they get to get those profits tax free.
Well, that's great for the fellow who comes in and preys on
the misery of the poor guy who has got to sell his house. It
does absolutely nothing for the poor guy who has got to sell
his----
Mr. Frank. What happens--if they lose their houses, what is
the prospect for all these people--working people we're talking
about, maybe making $30,000 or $40,000 a year--what is the
prospect that, having lost the house they had and lost the
money they had sunk into it, and lost the downpayment, lost
whatever mortgage payments, what is the prospect for large
numbers of them getting a new house? How is that going to
happen?
Mr. Taylor. I think, Congressman Frank, you can answer your
own question. I mean, two bad things can come out of this. They
can have on their record that the bank foreclosed on their
mortgage, or they can have on their record that they, you know,
bought a house for $100,000 and sold it for $20,000 and that
because of that then, therefore, could not pay off their credit
card bill, could not pay off other loans that they may have had
out. Their credit history is probably ruined from that point,
and their chances of buying another house have been
substantially diminished.
We can try to make those people whole. Not even whole, just
make them closer to where they were the day before the storm.
Every one of them would rather have their house back. But at
least we're saying that we, as a Nation, are going to step up
and try to help you save your house. And again, I appreciate my
colleagues who have signed on to this bill.
Believe me, if we could think of a better way, I would
welcome anyone's thoughts on a better way to make these people
whole.
Mr. Frank. Thank you. And Mr. Baker indicated that he had
something to add.
Mr. Baker. I just wanted to contribute. I come at it with a
similar motive but a slightly different direction, with the
Recovery Corporation, where we do provide for a mechanism not
to make whole, but to provide for some reimbursement at the
owner's choice: cash, move on, stay part of the new
development----
Mr. Frank. Let me ask you, too. Your bill is Louisiana-
specific. Is there any reason why that couldn't be broadened,
or----
Mr. Baker. The only reason it is Louisiana-specific is
because of the varying amount of debt that would be issued
between Texas, Louisiana, Mississippi, Alabama, and we don't
want to have States competitive within Treasury----
Mr. Frank. But the logic of your proposal would be that
each State should have their own----
Mr. Baker. Yes, that is correct.
Mr. Frank. Thank you. Thank you, Mr. Chairman.
Chairman Ney. I would like to move on to the second panel
unless members have a compelling desire to ask questions.
Mr. Pearce. If you don't mind me making a quick comment--
and I understand the sensitivity of the matter--I will just
tell you--it needs better explanation--but in understand that
we need to get to the next panel; the devastation is apparent.
But I will tell you that there are single individual losses
that occur every day that, because they don't have the
visibility, will never get paid. And we are asking people who
are devastated individually to pick up the burden.
And I would use examples of ranchers on the border that,
due to the policy of our U.S. Government, we have fences stolen
and the Government will not reimburse that. And people say,
``Well, they should be ranching at a better place; they should
have known,'' same things that Mr. Taylor is saying, that they
should not be on the border of where the people come up to the
border and steal their goods.
Just south of my district in Texas, the town of Zaragosa,
Texas, about 15 years ago the entire town was blown away by a
tornado, and it was not rebuilt with Federal funds.
When we look at compassion--someone said if the private
sector is not going to pay, we, as a Nation, should pay--when
we begin to use the Government for compassion, I will tell you
it is very difficult because compassion to one is uncompassion
to another. And if we go back and review the decision to pay
the people $1 million-plus at 9/11, it was full of compassion,
full of heartfelt understanding of the loss.
But what it said to the families--my district was the one
who was at Bataan, it was the Mexico National Guard that served
and died in the Bataan Death March--and what it said to those
people who lost loved ones in Bataan is that, ``Your loss is
somehow not compensationable.'' That's not a very good term,
but we are not going to compensate your loss, but we are going
to compensate the victims of 9/11 because it is so much more
apparent, and it is so much more--we have got the political
desire to do that.
I will tell you that we are all going to wrestle with this
problem. I understand the economic devastation, but keep in
mind it was in my district, a district with no earthquake
experience throughout our history, and about 15 years ago an
earthquake came. We've got oil wells which stick 7,000 and
10,000 feet deep, and those oil wells were completely broken.
There was no one there to say, ``We should pick up the
pieces for you; we should try to recreate the jobs; we should
do these things.'' And I will tell you that as emotional as it
is, if we pay for one and don't pay for every one, we are
making some judgement errors that we will live with a long
time. Thank you, Mr. Chairman.
Mr. Tyler. You know, I hope you know I pride myself on my
desire to balance the Nation's budget. And we probably look at
this differently. I voted against almost every tax break
because I didn't see how we could simultaneously increase
spending, cut taxes, and somehow make it all work, and prepare
for things like this and future wars.
I guess what is different is the scale, quite frankly. I
also feel fortunate to know people who have survived the Bataan
death march. I know a guy who at 16 received the Congressional
Medal of Honor, lied about his age to get into the Marine
Corps, dove on two hand grenades at the Battle of Iwo Jima.
He's a south Mississippian.
There are 38,000 people in south Mississippi who don't have
homes. Seventy percent of the people in my home county either
have no home or now own a home that is uninhabitable. I think
it's the shear scale of it. And I do understand we can't do
everything for everybody.
But, you know, there is going to be some cynic out there--
maybe one of the next panelists--who is going to say, ``They
should have known better.'' You know, that blind cleric by the
name of Raman got a guy to drive a truck full of explosives
into the twin towers with the idea of setting off an explosion
in the basement, toppling one tower into the other, and killing
all the occupants. That happened around 1994.
I guess a person could say, ``Well, those people should
have known it was a target of terrorists,'' but I didn't say
that. I voted to help make those people's--I can't bring back
the people who died, but I tried to make the people--the lives
of the survivors a little bit better. I thought it was a
prudent thing for our Nation to do.
And you're right. When you consider that compared to what
happened at the Bataan Death March, or the people in World War
II, the guys who were slaughtered on the beaches in Normandy,
you can't make every wrong right. But you can do some things.
And those things we can do, we should do.
Chairman Ney. Thank you. Mr. Blumenauer?
Mr. Blumenauer. Mr. Chairman, I appreciate your courtesy in
permitting me to sit in on this. I want to commend these two
gentlemen for the big picture that is being offered up. And I
am hopeful that there is a way to approach it in the spirit
that I think in which it is offered.
I think we heard people ask for tweaks. We have been
privileged to work with Mr. Taylor as he has brought this
concept forward. But I think we are putting on the table two
big items in terms of scale of reconstruction and type of
partnership.
I commend Mr. Baker for calling the question, and look
forward in various committees, how we can come together to see
what can come from this challenge. And his approach is the
biggest scale I have seen to this point, and I think it is
worthy of serious consideration.
And I appreciate Mr. Taylor and the work that he has done
in terms of calling the question about the nature of the flood
insurance program and how this committee has already
acknowledged that more money is going to be needed anyway. This
is an opportunity to deal with this issue in a more
comprehensive way keeping the integrity of the program, but
dealing with people who have really been taken unawares.
I appreciate the spirit with which both gentlemen have
offered their proposals and the way the committee has been
approaching them. And I think there are lots of us on the
outside world that would really love to continue working with
you and with them because this is the sort of thing that I
think is ultimately going to get us to the situation and
resolving it.
Chairman Ney. I am sure that this will not be the last of
these discussions. Any other members? Mr. Melancon?
Mr. Melancon. I want to thank both of my colleagues, Mr.
Taylor and Mr. Baker, who I am proud to say I served with. The
efforts are good. We have got a long way to go.
To the gentleman who was concerned just a minute ago, just
for the record, tornadoes are covered by property insurance
policies. So if they rebuilt, if they had insurance, they
didn't have a problem.
This is a situation where people had insurance, and they
are not covered. And this is a situation where in St. Bernard
Parish alone I think the number is 24,000 or 34,000 homes are
uninhabitable and not covered if the insurance companies have
their way, by the policies that they thought would take care of
them.
Mr. Baker. If the gentleman would yield on that point, I
have also learned that when a properly conducted business owner
acquired business interruption insurance, if your supplier was
in Orleans and the supplier was wiped out, you're covered. But
if your business was in Orleans and you were flooded, you're
not covered.
Mr. Melancon. That's right.
Mr. Baker. So smart business people buying product they
thought to protect them prudently turned out not to be so
prudent.
Mr. Melancon. Thank you, sir.
Chairman Ney. Any other members?
[No response.]
Chairman Ney. I want to thank both the gentlemen.
Moving on right away to panel two, I think what we will do
is have a vote. We should probably do that and come back. I
won't return; I have got another appointment--I thought this
would end by noon--but somebody will be here, you know,
obviously, to chair.
So I just wanted to make one comment because I won't be
back here. I think that if we--well, my question is going to
be--and it will be asked for me--is, is the White House
actually going to submit a request for--to up the debt relief.
And just a personal opinion, if that happens, we ought to
have instantaneous accurate mapping if we are going to spend
all that money.
On another note, we would remind members that you are not
going to be able to answer all the FEMA questions that we want
answered about housing and situations like that. But as a
personal editorial, if we are looking just for FEMA's
information--not yours--but if we're looking for helping people
down there, taking away Davis-Bacon living wage is not a way to
help people down in that affected area.
With that, we will recess.
[Recess.]
Mr. Pearce. [presiding] The meeting will come to order. Our
second panel is Mr. David I. Maurstad, acting director and
Federal insurance administrator, mitigation division, the
Federal Emergency Management Agency, the emergency preparedness
and response director in the Department of Homeland Security.
And if he has to announce his title every day, it takes about a
third of the work day just to say that.
And the second witness will be Mr. William O. Jenkins, Jr.,
director of homeland security and justice, U.S. Government
Accounting Office.
Mr. Maurstad?
STATEMENT OF DAVID I. MAURSTAD, ACTING DIRECTOR AND FEDERAL
INSURANCE ADMINISTRATOR, MITIGATION DIVISION, FEDERAL EMERGENCY
MANAGEMENT AGENCY, EMERGENCY PREPAREDNESS AND RESPONSE
DIRECTORATE, DEPARTMENT OF HOMELAND SECURITY
Mr. Maurstad. Thank you, Mr. Pearce, members of the
subcommittee. If I can have the written remarks part of the
record, I will----
Mr. Pearce. Could you ensure that your microphone is on and
pulled up close?
Mr. Maurstad. Yes, sir. Is that better? Thank you. And let
me first say that I appreciate the opportunity to appear this
afternoon. I have personally observed the area down in the Gulf
Coast area, the damaged areas, and been there and witnessed the
devastation that was talked about earlier, and have been
working with the insurance commissioners of the affected
States, and want to continue to express my sympathy and prayers
for all of those that are affected.
I would like to focus my remarks, oral remarks, on the
financial condition of the National Flood Insurance Program, as
seen through the prism of Hurricanes Katrina and Rita.
However, I want to take the opportunity, in addition, to
emphasize that NFIP is more than just an insurance program. It
is flood risk identification, the importance of which is
demonstrated with the 5-year $1 billion flood map modernization
effort that is underway with the support of Congress and the
Administration, which leads to an important aspect, and that's
the company participation and community participation in the
National Flood Insurance Program.
There are over 20,100 communities that voluntarily agree to
participate in the program. Part of that agreement deals with
the mapping. The Federal Government doesn't impose the
referenced maps on local communities. Communities agree to
participate; they agree to adopt the flood maps to guide them
with the second aspect of what I want to share with the
committee that deals with flood plain management.
So when they adopt those flood maps, the proposed flood
maps that we provide to them, they are adopted on the basis
that that is the minimum requirement to participate in the
National Flood Insurance Program. Communities have the ability
to adopt maps that go beyond the 100-year flood, and many
communities do do that.
The sound flood plain management component of the NFIP
saves this country an estimated $1.1 billion in preventative
flood damages annually. That means that since 1996, the Nation
has reduced the risk of flood by $10 billion. In addition, the
structures built to NFIP criteria experience 80 percent less
damage than structures not built to those standards.
Having said that, let me return to the financial situation
of the National Flood Insurance Program on the heels of Katrina
of Rita. On September 20, 2005, the President signed H.R. 3669,
which increased the NFIP's borrowing authority from $1.5
billion to $3.5 billion.
However, as Katrina and Rita-related claims will exceed
this amount, I am authorized to request from the committee that
$5 billion be added to this authority. This stop gap measure
should allow sufficient borrowing authority to cover claims
through mid to late November, which would enable us to work
with this committee and others to complete meaningful program
reform recommendations.
It is also important to note that since 1986, the NFIP has
been financially self-supporting. During periods of high
losses, the NFIP has borrowed from the U.S. Treasury, which is
an essential part of NFIP's financing for heavy loss years.
These loans have been repaid with interest from policy-holder
premiums and related fees at no cost to the Nation's taxpayer.
Hurricane Katrina was a catastrophic event, going well
beyond what the NFIP was intended to address from premium
revenues alone. In that context, let me refer to the charts
that have been provided to subcommittee staff and, hopefully,
are available to you.
I direct your attention first to the chart that is about
National Flood Insurance Program Estimate of Ultimate Paid
Losses from Hurricane Katrina. There is a similar report----
Mr. Pearce. Which panel--which sheet is that, CRS37?
Mr. Maurstad. I believe I provided these charts to staff,
along with the oral testimony, sir. And we have copies if you
need copies. Do you need copies? There should be three
documents----
Mr. Pearce. Yes, you can go ahead. Thank you.
Mr. Maurstad. Okay, thank you. Two of them are identical in
format, one dealing with losses from Hurricane Katrina, and the
other from Rita. I'm not going to go through this chart line by
line. I just point out to you that this is the basis by which
we have developed what we believe that the ultimate paid losses
from the hurricanes will be, broken down by State and by
affected counties.
What we have provided in that is the total policy in force
in a particular county, the total coverage associated with
those policies and then as you move across to the right, what
we estimate the assumed frequency for the number of losses on
that total policy count, which leads us to the next column,
which is the estimated number of claims that we are looking at
for that particular county.
The next column, we estimate what we believe to be the
severity of the individual losses, with the final column being,
of course, the total of the estimated number of claims times
the assumed severity.
If you go down to Louisiana, we also break that severity
down to a little bit finer level in the assumption of the
percentage of claims that would be paid at policy limits, those
that would have a $40,000 severity, and the remaining at
$50,000 severity.
So we have used this as the guide, in addition to the
information that has been generated from our requests from the
96 write-your-own companies. But primarily in this area there
are about seven major insurance companies that administer the
National Flood Insurance Program on behalf of the Federal
Government in our what was biweekly calls and now weekly calls
and the reporting that we have set up for them to tell us the
number of claims that they are getting reported.
And as time goes on, when those claims are being closed,
and the amount that they're being closed, so that we can keep
as close an accounting, real time, as much as possible, given
the circumstances, so that we know what to present to you as to
the condition of the fund is.
The third sheet that we provided is the projection of the
Federal cash flow from the claim payments, and which is guiding
us to--it is the basis by which we requested the additional $2
billion of borrowing authority and now are requesting an
additional $5 billion of borrowing authority.
And you can see that our expectation is, on a weekly basis,
that by mid to late November, our current borrowing authority
will not be sufficient to take care of the claims that were
expected to be closed and payments made to policy holders
during the period between now and then, and then we carry that
on out to the ultimate of $23 billion being the expectation for
this event.
I indicated in my written testimony how that compares with
historical, and it clearly is many, many, many times beyond
what the program has ever experienced in the 38-year history.
Let me conclude my comments and then be certainly available
for questions, either about the reports or my testimony. The
$23 billion in estimated claims from those whose homes and
businesses have been damaged or destroyed by Hurricanes Katrina
and Rita is not a new obligation. It is the result of a legal
promise we made to these homeowners and business owners when
Congress passed the National Flood Insurance Act of 1968 and
the subsequent revisions.
Homeowners and business owners agreed to pay the premiums;
communities agreed to adopt building codes to mitigate flood
damages; and the Federal Government agreed to provide insurance
coverage to policy holders after a disaster.
Every single one of these claims represents someone who has
taken the responsible course of action by purchasing flood
insurance and faithfully paying the premiums. We not only have
a legal obligation to honor our commitments, we have a moral
obligation to provide the coverage we promised to provide.
To do anything less would not only result in dire
consequences for the NFIP, the write-your-own insurance
companies whose names are on the policies, and the communities
working hard to manage their flood risks, it would simply be
wrong.
Once again, thank you for the opportunity to testify. And
certainly, as in the past, I'm available to the committee.
[The prepared statement of David I. Maurstad can be found
on page 132 in the appendix.]
Mr. Pearce. Thank you. Mr. Jenkins?
STATEMENT OF WILLIAM O. JENKINS, JR., DIRECTOR OF HOMELAND
SECURITY AND JUSTICE, U.S. GOVERNMENT ACCOUNTING OFFICE
Mr. Jenkins. Congressman Pearce and members of the
subcommittee, I appreciate the opportunity to be here today to
discuss the challenges facing the National Flood Insurance
Program.
The devastating effects of Hurricanes Katrina and Rita have
placed unprecedented demands on the NFIP. As of October 13th,
FEMA reported that 192,809 claims had been filed, and NFIP had
paid almost $1.3 billion to settle 7,664 of these claims. This
number of claims is more than twice as many as were filed in
all of 2004, itself a record year.
The NFIP combines property insurance for flood victims,
maps to identify the areas at greatest risk of flooding, and
incentives for participating communities to take actions that
reduce future flood damage.
A key characteristic of the NFIP is the extent to which
FEMA must rely on others to achieve the program's goals. FEMA's
role primarily is to one, establish policies and standards that
others generally implement on a day-to-day basis, and two,
provide financial and management oversight of those who carry
out those day-to-day responsibilities.
My statement today focuses on FEMA's management and
oversight of the sales and service of flood insurance policies.
FEMA faces a challenge in providing effective oversight of the
96 insurance companies and thousands of sales agents and claims
adjusters who are primarily responsible for the day-to-day
process of selling and servicing flood insurance policies,
including claims adjustment.
About 40 FEMA employees, assisted by about 170 program
contractor employees, are responsible for managing the NFIP.
Management responsibilities include establishing and updating
NFIP regulations, administering the National Flood Insurance
Fund, analyzing data to actuarially determine flood insurance
rates and premiums, and offering training to insurance agents
and adjusters.
In addition, FEMA and its program contractor are
responsible for monitoring and overseeing the performance of
the write-your-own companies to assure that the NFIP is
administered properly. For example, assuring that policies are
properly priced, and claims appropriately handled.
FEMA told us that its principal method of monitoring
performance and identifying and resolving problems is to
conduct an operational review about once every 3 years, of each
of the 95 write-your-own companies. In addition, FEMA's program
contractor is to check the accuracy of claim settlements, do
quality assurance reinspections of a sample of claims
adjustments for every flood event.
We examined 15 operational reviews completed from 2001 to
February of 2005. We found that these 15 operational reviews
met both FEMA's standards for identifying critical errors, such
as violation of policy or an incorrect payment, and that FEMA
tracked a company's progress in correcting any identified
critical errors.
We also found that FEMA's method of selecting the sample of
claims for reinspection was useful for identifying some
specific problems and risks. But the sample was not
representative of all claims settled and, thus, could not be
used to assess the overall performance of private insurance
companies and adjusters who process claims in a specific flood
event.
An instructor for adjuster training cited several problems
he had identified in reinspecting claims, such as one, improper
room measurements, two, improper allocation of costs caused by
wind damage, and three, poor communication with homeowners in
the process followed to inspect the property and settle the
claim.
Additional payments were made for about half of the 2,294
claims that used the appeals process set up for Isabel claims,
principally, for two reasons: the adjuster did not include some
items he should, and higher payments for materials, labor, or
personal property than originally allowed were allowed on
appeal.
FEMA has made progress, but not fully implemented the
requirements of the 2004 Flood Insurance Reform Act. For
example, in September, FEMA posted on its website its flood
insurance claims handbook, which outlined a basic four-step
process for appeals, but has not yet completed the design and
implementation of its full appeals process.
We recommended that FEMA develop plans that include
milestones for completing requirements of the 2004 Act and
assigning accountability for meeting those milestones.
FEMA faces a formidable challenge in providing effective
direction and oversight for processing the record number of
flood insurance claims that have arisen and will arise from the
recent hurricanes. This record number of claims only reinforces
the importance of effective oversight and the need for clearly
defined, understandable, and consistently applied processes for
policy holders on filing claims and appealing claims
settlements.
It also highlights the need for effective communication
with the thousands of anxious policy holders, many of whom have
been displaced from their homes and many who have lost
everything.
As part of the body of work GAO is beginning on the
preparation for a response to and recovery from Hurricanes
Katrina and Rita, our work on the NFIP will continue. That
concludes my statement, Mr. Chairman. I will be pleased to
respond to any questions you or the other members of the
committee may have.
[The prepared statement of William O. Jenkins, Jr. can be
found on page 55 in the appendix.]
Mr. Pearce. Thank you. I would yield to myself to start the
questions.
And Mr. Maurstad, I guess if I'm looking backwards, it
looks like maybe in 2004 we were about $60 million--we had $60
million in the bank right? And then we had the losses of $2.28
billion in 2004, so we ended up borrowing $220 million. And you
said that money has entirely been paid back?
Mr. Maurstad. We originally had borrowed $300 million
earlier this year. We paid back $75 million. And so the
statement that we had paid for 1986 now is up to that point in
time.
Mr. Pearce. I understand. But you have--you make--you take
loans out and you make repayments. So I am looking at a revenue
picture of $2 billion a year. Is that about what the Agency
gets in in premiums?
Mr. Maurstad. In premiums and in fees from the policy
holders.
Mr. Pearce. About $2 billion in revenues?
Mr. Maurstad. Yes.
Mr. Pearce. Now if I were going to go to a bank and borrow
$22 billion with $2 billion worth of revenue, 22 versus 2, I
would have to have it amortized over a long number of years.
How many years is it going to take to pay back just Katrina?
Mr. Maurstad. We----
Mr. Pearce. Just the $22 billion or $23 billion that you
are estimating.
Mr. Maurstad. It is my opinion that the program does not
have the ability to repay the portion of the--of what we are
looking at here, beyond about $1 billion, unless we extend it--
--
Mr. Pearce. Okay. So we don't have the ability to repay.
Mr. Maurstad. Not----
Mr. Pearce. And in another part of your testimony, you said
that we have made a legal promise. Why are we making legal
promises that we don't have the capability to fulfill? That
becomes a critical question in the administration of the
program.
Mr. Maurstad. When the program was designed, back in 1968,
and since then, it was designed from the premise that premiums
would be generated that would be able to take care of the--an
average loss year, and that borrowing authority would be
extended to move--enable the program to move from year to year
in those ups and downs that are going to occur from an average
loss year.
Mr. Pearce. Basically, you are saying we miscalculated.
Mr. Maurstad. No, I'm saying that without--it's my opinion
that the idea that if a catastrophic event ever occurred such
as we're facing now, that the Federal treasury would be the
means by which that difference would be made up, that the
program was not capitalized, that the previous looks at whether
or not reinsurance made more sense turned out to be more costly
than if we continued to work the program based on average loss
years with the necessary borrowing authority to get through the
ups and downs.
Mr. Pearce. What--you said that all the check marks--in
other words, the responsibility is on the part of others. Your
comments were we made a legal promise to pay, but that people
have a responsibility to buy; the communities had a
responsibility to develop building codes.
And are you telling me that if I am to look at your other
sheet showing 235,000 estimated claims, 235,944 estimated
claims that the building codes for all of those have been
adequately--the check marks have been adequately made and that
we have done our due diligence through all parts of society in
order for us to say that we have the moral obligation to pay,
which is your ultimate conclusion?
Mr. Maurstad. It is the responsibility of the program to
make sure that the communities----
Mr. Pearce. And have they done that?
Mr. Maurstad.--the----
Mr. Pearce. And have they done--you said building codes was
an important parameter.
Mr. Maurstad. Yes.
Mr. Pearce. And have all the building codes been put in
place and complied with?
Mr. Maurstad. Yes.
Mr. Pearce. Could I get documentation to that effect, that
you would, in your words, say that all building codes have been
put in place, and they have been 100 percent complied with?
Mr. Maurstad. When they are--when non-compliance is
discovered, either by our inspections and community visits that
occur, or if we are made aware of those violations, then we
address them and require the communities to rectify the
problem, or we go through the process of suspending them from
the----
Mr. Pearce. Mr. Jenkins, in your testimony you have
indicated some oversight of--or some looking at introspection
of the program. Would in your estimation we have complied with
100 percent of the building codes in the requirements for
communities to do their due diligence in these 235,000 claims
that are going to be filed?
Mr. Jenkins. Well, I think there is one thing that is in
Mr. Maurstad's statement that is not a fault of FEMA, but there
is a significant number of repetitive loss properties that by
definition don't necessarily meet those regulations because
they were essentially grandfathered into the program. And there
are roughly 22,000 of those in Louisiana, for example, for
which there would be claims.
So, in particular, for the repetitive loss properties--
these are properties that were built before the flood maps were
created, and when they were built it wasn't known that they
were necessarily in a flood plain.
So to the extent that there are these properties in the
program--and they are about 24 percent of all the properties
that are in the program are in this category--then they don't
necessarily meet the building codes.
Mr. Pearce. Thank you. I appreciate that. Ms. Waters, I
yield to you. I will have additional questions, so if you would
like to have two sets of questions ready, we will go at least a
second round.
Ms. Waters. Thank you. Thank you very much. I appreciate
that.
Mr. Maurstad, there have been, as you know, a lot of
criticism and many complaints about the program. I think when
you were here before, we requested information from you about
interrogatories and document requests that Steve Kanstoroom--
several committee members in July.
You answered to the question--you said you had responded,
or you were in the process of responding to every request that
came to your office. I have not received anything. Have you
sent me anything?
Mr. Maurstad. Ms. Waters, I regret to let you know that we
have not responded to those questions for the record. They are
in the concurrence process now, and I am working with my
cohorts in the office of general counsel in getting those
answers for your questions, and getting them to you and the
committee.
Ms. Waters. How long do you think it will be before we get
those answers? What's the time frame?
Mr. Maurstad. Very soon.
Ms. Waters. This year?
Mr. Maurstad. Yes, ma'am.
Ms. Waters. Next month? This month? Next month?
Mr. Maurstad. Hopefully. I will work----
Ms. Waters. Before December?
Mr. Maurstad. Yes, ma'am.
Ms. Waters. Some time in November. Okay, we will look
forward to that.
Mr. Maurstad. I will do my best.
Ms. Waters. All right. There are some questions about the
competency of some of the people that work for the Agency. And
there is some information that I received about an adjuster
training session, all these problems about--questions about the
adjusters.
A training session that took place in Mississippi shortly
after Katrina, and according to a Mr. Jackson, many of the
prospective adjusters had never adjusted a claim of any type,
and that the CSC trainer provided the test answers to more than
500 adjusters, and he believed that these untrained adjusters
were being used, unleashed on unsuspecting Katrina and Rita
victims. How do you respond to that?
Mr. Maurstad. I am not aware of that. We will certainly
check into that. I would say to you that if there are
independent adjusters, they have to be certified with the
program for 4 years. If--we certainly have a provision where if
a less experienced adjuster is needed because of the sheer
volume of claims that we're looking at, that they have to work
with one of our certified adjusters and, in essence, in a buddy
system, so to speak, apprentice system.
And so there aren't any adjusters out there that have never
worked flood insurance claims that have the authority to settle
the claim. They would be working with one of the certified
adjusters.
Now the adjusters that work for the companies that we
primarily write the policies--that write the policies on behalf
of the program, 95 percent of the policies are written by the
write-your-own companies. They use their adjusters, and they
train those adjusters, and they provide the assertion to us as
a part of their arrangement with the program that those
adjusters are trained.
But your specifics about somebody providing answers to test
questions, I will have to look into. That's not my
understanding. I don't have a firsthand understanding of that.
I did attend adjuster training sessions right after Katrina
hit in Alabama and Mississippi and Louisiana, and I didn't
witness any of that.
Ms. Waters. What is the Jones Insurance Agency?
Mr. Maurstad. The Jones Insurance Agency that I am familiar
with is located back in Nebraska. It's an independent insurance
agency that operates in a few of the communities in Nebraska. I
am sure there are a number of other Jones Insurance Agencies
throughout the country.
Ms. Waters. Is there one that is doing business as Maurstad
Insurance Services?
Mr. Maurstad. That agency purchased the agency that I was a
corporate officer of back in 2003, I believe.
Ms. Waters. Are you a principal, a beneficiary in any way,
of the Jones Insurance Agency at this time?
Mr. Maurstad. No. No, I am not.
Ms. Waters. When did you sever your relationship with them?
Mr. Maurstad. I believe it was March 1, 2003. I can
provide--if that's not correct, I will correct the record.
Ms. Waters. Okay. Would you say that for me, again? March?
Mr. Maurstad. First of 2003. The agreement, I believe, was
effective, actually, you know, January 1, 2003.
Ms. Waters. What was the period of overlap in your service,
your job, and the overlap with your----
Mr. Maurstad. As acting Federal insurance administrator,
none.
Ms. Waters. Give me the dates from the----
Mr. Maurstad. March 1, 2003. I was appointed acting Federal
insurance administrator, I believe, June 25, 2004.
Ms. Waters. Do you have any interest or participation in
any other insurance-related business or entity at this time?
Mr. Maurstad. No, I do not.
Ms. Waters. Well, I have a lot of questions here that
relate to conflict of interest, and I don't want to just simply
put you on the spot, because these are very serious questions.
But you should be aware that there are a number of allegations
and inquiries that are being made about past conflicts of
interest, potential conflicts of interest, even to a point
where you were licensed to serve as a broker.
So what I am going to do is I am going to set up some time
with you to talk this over with you first and go through these
questions so that you will have an opportunity to tell me what
you know about these issues. And then we will see what happens
from----
Mr. Maurstad. Yes. And I have provided this information to
the ethics officer of the department. I have filed all the
necessary financial disclosures as required.
Ms. Waters. Okay.
Mr. Maurstad. I would be pleased to be able to sit down
with you as well.
Ms. Waters. Okay, thank you. We will do that. My time up?
Mr. Pearce. Yes.
Ms. Waters. Thank you very much.
Mr. Pearce. There will be a second round if the gentlelady
would like to take that.
Ms. Waters. All right.
Mr. Pearce. I think my first question would be that, Mr.
Maurstad, I understand that you said we could sustain about $1
billion repayment, and the rest of it really should not be in
the form of a loan. Is that more or less correct?
Mr. Maurstad. Yes, sir.
Mr. Pearce. In your initial opening statement, you had
talked about $1.5 billion to $3.5 billion has already been
authorized, and another $5 billion would be authorized. Now, it
was my understanding you were talking in terms of a loan at
that point.
Mr. Maurstad. Yes, sir.
Mr. Pearce. Why would we be--why would FEMA be requesting a
loan when you don't have capability to repay anything exceeding
$1 billion. Is that--shouldn't we just get the terminology out
on the table right now?
Mr. Maurstad. The reason that we are requesting the
additional loan authority is so that we can work with the
committee and work with others in developing a program to--
recommendations to strengthen the program when that--the
ultimate decision that you're talking about would be made.
Mr. Pearce. And what recommendations to strengthen the
program involve--I mean, just basically financially, what
recommendations are you going to make? Are there going to be
premium increases for the affected areas? What?
Mr. Maurstad. Well, premium--there would not be premium
increases for just the affected areas because the same rates
are charged throughout the country based on the risk associated
with a particular zone on the flood map. So more isn't
charged----
Mr. Pearce. I understand.
Mr. Maurstad. Okay.
Mr. Pearce. Just premium increases across the board, then?
Mr. Maurstad. Certainly. We increased premiums last year.
Mr. Pearce. How much did premiums go up last----
Mr. Maurstad. Those policies that are at less then risk,
about 8 percent. The actuarial-rated policies that make up
about 75 percent of the program, at about--my memory is between
2 and 3 percent. I can provide that, those specific increases,
to you.
Mr. Pearce. What about the repetitive losses that Mr.
Jenkins mentioned? You have got 22,000 repetitive losses. I was
watching a guy on TV one night saying that he had rebuilt two
or three times and collected every time. Do you have any idea
that you're going to begin to curtail those practices of paying
repetitive losses?
Mr. Maurstad. We were given authority in 1994 and started
the flood mitigation assistance program that was targeted at
repetitive loss properties that was funded from part of the
fees that were generated from the policies.
You know, last year we had about $20 million go towards
that effort trying to address repetitive loss property----
Mr. Pearce. How are we trying to address those?
Mr. Maurstad. Excuse me?
Mr. Pearce. How are we trying to address them?
Mr. Maurstad. We either relocate or elevate the structures
above the base flood elevation are the two primary ways that
that is done.
And, of course, the--in the reauthorization in 2004 that
included a provision to address severe repetitive loss
properties--and, you know, we're pleased that with the signing
of the Department of Homeland Securities budget a couple of
days ago--we will now have the ability to transfer funds from
the National Flood Insurance Fund to support the beginning of
the severe repetitive loss property, as directed by the
authorization----
Mr. Pearce. You're not going to stop--you won't cease
paying claims on repetitive properties? You will actually buy
them out and physically move them, is that correct?
Mr. Maurstad. In the previous policy it was on a willing
buyer/willing seller basis that you provide a mitigation
opportunity to a property owner and provide grant assistance to
do that. We have two other programs----
Mr. Pearce. Well, I think if we took a--did you take a look
at some of the people? I mean, I suspect if I go back and
explain to my constituents that we are paying--I think if we
took a balance sheet of some of the people that we're buying
their properties, and the number of times they have received
compensation for those properties, I suspect I would not have a
good time explaining to people in my district.
Our average income is about $21,000, $22,000 a year, and we
are paying those repetitive losses to people, I suspect, with
bank accounts larger than net worths of people in my district.
I really question that whole process.
You have got--you have 40 full-time employees, 170 contract
employees. How many people is it going to take to administer
Hurricane Katrina by itself?
Mr. Maurstad. Well, one of the benefits of the way the
program is structured--and again, that we rely on the 96 write-
your-own companies to administer the program--is primarily
their resources that are being used to handle the claims that
are going to--that are outlined in the hand-outs that I
provided you.
And so, although this is certainly beyond what a normal
event would be, right now we have set up processes by which
companies would be able to streamline some of the claims
handling for those losses that are going to clearly exceed
policy limits.
So we are working with the write-your-own industry to
handle these claims as quickly and as fairly as possible. But
the benefit, again, of the system--to get directly to your
question--is we utilize the private insurance industry to deal
with the magnitude of this event.
Mr. Pearce. And I realize my time has expired, but just to
follow up, is that, the cost for that use of the private
insurance industry to administer, is that calculated into the
cost?
Mr. Maurstad. Yes. Some of it is, sir, yes.
Mr. Pearce. Ms. Waters, do you have additional questions?
Ms. Waters. Well, you know, I am so concerned about all of
these losses, and all of these citizens who will be placed in
the position of trying to recover, trying to get insurance
companies to pay, trying to get you to compensate them fairly.
And we have had so many complaints, and people are in the
understanding, often times, that they are to be made whole,
that the adjusters, you know, are not doing the work in a way
that respects and recognizes their tremendous losses.
Now I am looking at this GAO report, and it said that FEMA
has not yet fully implemented provisions of the Flood Insurance
Reform Act 2004 requiring that the Agency provide policy
holders with ``a flood insurance claims handbook that meets
statutory requirements to establish a regulatory appeals
process,'' on and on and on, and that the deadline was December
30, 2004. What's with this?
Mr. Maurstad. There are some aspects of the reauthorization
that we are--have not fully completed to this point. But as my
written testimony indicates, beginning back in September, we
are, in fact, providing the claims handbook to policy holders.
We are in the process of the companies providing the summary of
coverage to the policy holders as those policies are now
beginning to be reviewed--or renewed.
So there are certain--the agent training component of the
reauthorization, we have completed that, working as directed
with the insurance commissioners across the country. So there
are certain parts of the reauthorization that we have complied
with and completed. There are other parts that we are in
various stages of completing. We are working very aggressively
at getting it all done.
Ms. Waters. That's a real problem.
Mr. Maurstad. And if I could----
Ms. Waters. Let me just tell you--and I think you know
this--one of the greatest complaints that we are going to hear
from the victims of Katrina and Rita is that they are not being
treated fairly, that the adjusters are not treating them
fairly.
So we are going to hear a lot of this. And we just hope
that you can do something that will demonstrate that you are
bending over backwards to treat these people fairly. I mean,
they have gone through an awful lot.
Mr. Maurstad. Yes----
Ms. Waters. Having said that, this handbook and information
that helps to educate people and helps to help them to walk
through these processes and these procedures is so very
important. And that should not be underestimated. And I would
like to see this fully implemented.
Mr. Maurstad. Yes, ma'am. We agree with you. And we
wanted--and part of the delay, quite frankly, was working with
the write-your-own companies, working with the agent groups, to
make sure that the tools that we develop have the effectiveness
that you're talking about.
So we work with them and consult with them to make sure
that we do that. We agree that the better information we can
provide to policy holders, the more easily they are going to
understand the process and be able to have their claims handled
fairly. We have----
Ms. Waters. Do you think we should set up a program for the
payment of premiums that will protect beyond $250,000, if
people are willing to pay a little more?
Mr. Maurstad. We certainly--that figure has not been
changed since 1994. We certainly need to look at----
Ms. Waters. Have you recommended----
Mr. Maurstad. We would certainly need to look at, as we try
to move forward on how we can strengthen the program, whether
the fund can support that increase in limit of insurance. It
certainly is on the table and certainly needs--and we are
reviewing it.
Ms. Waters. So--but you have not made a recommendation to
that effect anyplace?
Mr. Maurstad. No, I have not.
Ms. Waters. But this would be with an increase in premiums
for those who are willing to pay?
Mr. Maurstad. There will certainly be----
Ms. Waters. Can afford to pay? Who have properties that are
in excess of $250,000? You think that's a legitimate way to
deal with coverage of some of these properties?
Mr. Maurstad. I certainly think it's legitimate and
certainly think that it's one of the things that we need to
look at as we work together to try to strengthen the program if
that, in fact, is----
Ms. Waters. What's taking you so long? You didn't just
start thinking about this today.
Mr. Maurstad. No. Part of the reason--I started, actually
thinking about it a year ago, after some of our conversations
and after reviewing some of the complaints that had been
registered before.
But at that time, we were on the heels of the four
hurricanes that we were affected by in 2004, causing the
greatest number of claims in the history of the program, and
the fund was in a borrowing position. And so to increase the
limit of insurance at that point in time, it seemed to be
prudent to wait and see as we continued to look at that. So
it's on the table.
Another--what you're getting at is another concern of mine
in that we need to continue to educate people and make people
aware of, and that's insuring the value. Many times, when
people do buy a flood insurance policy, they only buy it for a
minimum amount. And then, when they have a devastating loss,
they again don't have the necessary insurance proceeds to help
them rebuild. So we need to do a better job of getting the 4.7
million policy holders that we have now to insure to value,
similar to what they do on their normal homeowner policy.
Ms. Waters. Well, what's taking you so long to have gotten
that job done?
Mr. Maurstad. Well, we are working very aggressively. We
have a public awareness campaign that we have shared with you
before, floodsmart.gov. We have a national campaign we targeted
to areas that have the greatest losses to try to make sure
people understand their flood risk, encourage them to contact
their local agent and buy a policy, provide the necessary
information to them through our floodsmart.gov website----
Ms. Waters. Okay, that's good. What about mapping? What
have you done about that?
Mr. Maurstad. Mapping, we are working very aggressively,
again, with our stakeholders. My programs all deal with working
with States and local communities, associations like the
Association of State Floodplain Managers, and we are working
with them in implementing the flood map modernization. We are
about--we are starting our, I think, fourth year of that 5-year
program. We are on track.
But it takes time to develop maps, from an engineering
point of view, working with the corps, working with private
engineers. But then also, it takes time once we deliver those
maps on a preliminary basis to the communities for them to have
the public hearings necessary and to formally adopt those maps.
So the process is one that is 2 to 3 years in time. That's
the way it is designed to be for the necessary public
protections.
Ms. Waters. Finally, do you support Mr. Taylor's bill for
dealing with those people who have no flood insurance?
Mr. Maurstad. No. I do not.
Ms. Waters. Why not?
Mr. Maurstad. Well, I think that it would provide a
disincentive for people to purchase flood insurance. There is
already a perception out there that one of the reasons why--I
am told, when people are asked why they don't have a flood
insurance policy--is one, they think that--they erroneously
believe that it is covered under their homeowner's policy, but
second, there is a perception that the Federal Government will
come in at the time of a disaster, and----
Ms. Waters. So what should happen to these people?
Mr. Maurstad.--provide them assistance. And it does not----
Ms. Waters. What should happen?
Mr. Maurstad.--encourage people to do the right thing and
buy----
Ms. Waters. What should happen to these people who--this
great disaster?
Mr. Maurstad. I think that there are a number of efforts,
not only within the Department, but within the Federal
Government and within the private sector to try to develop the
best way to meet those unmet needs.
Ms. Waters. No, we're not talking about meet unmet needs;
we're talking about people who have lost everything they have,
their home, everything they have.
Mr. Maurstad. I have seen it. Yes, I have seen it. And
maybe I didn't phrase my answer very well. What I am getting at
is that beyond this program that is designed to provide payment
of insurance claims for people that had insurance policies,
there are many other efforts underway to try to help those
people----
Ms. Waters. Such as?
Mr. Maurstad. Well, the individual assistance programs in
the disaster support----
Ms. Waters. Such as?
Mr. Maurstad. The Individual Assistance Program, rental
assistance, that there is actually--part of that program is
called ``Unmet Needs.'' Temporary housing----
Ms. Waters. Okay, see, it's all----
Mr. Pearce. The gentlelady's time is expired.
Ms. Waters.--talk in generalities about other programs, et
cetera, but let me just say this, Mr. Chairman, and I am
finished.
You have a lot of excuses, not only about mapping, about
not making recommendations to the Congress of the United States
about how to expand the program, excuses about why we have not
done the education job you further exacerbate by telling me
that people don't understand their own homeowner policies and
think that they are covered, and because they are stupid and
they are ignorant, that they should have to suffer, you know,
the consequences.
Please, try and think about this differently. Try and think
about what it means to a family to lose that home. I mean, that
is the American dream. That is everything. And there may be--
even though I have heard some discussion here today about how
do we meet all of the needs and whether or not we are doing it
for people with earthquake--there comes a time when the
disaster is so catastrophic, it is so huge, that we need to do
something special.
And we have got to be particularly sensitive at a time like
this. And I want you to think about how you can strengthen our
ability to provide protection in ways that people really
understand it. And in this case, with Katrina, Rita, et cetera,
how we do something extraordinary.
Thank you very much. And I appreciate that, Mr. Chairman.
Mr. Pearce. The gentlelady's time has expired. The
gentleman from Oregon, Mr. Blumenauer, is recognized.
Mr. Blumenauer. Thank you. And I do appreciate the
subcommittee's courtesy in permitting me to join in this
effort. I have been shuttling back from--with another committee
I am on that's looking, actually, at some of the same things.
Mr. Pearce. And the chair is about to have to do that,
also.
Mr. Blumenauer. I will be very brief. I would like to ask
about the nature of the report on the value of mitigation that
was required, I think, in the HUD appropriations bill of 2003.
My understanding is that you contracted with somebody; the
report is done; you have reviewed it; it has been forwarded off
to Homeland Security someplace. Do you have a sense of when
this report is going to be released?
It seems to me that if there was ever a time when it would
be useful for Congress to be able to understand the value of
mitigation, it would be as we are looking at these sensitive
issues. When can we get this report?
Mr. Maurstad. Sir, I have seen a draft of the report. We
have seen--but the actual report has not been formally
transferred to the Department or to the mitigation division.
It's my understanding that that's going to happen any day
now. I agree with you on the timeliness of the findings of that
report. And--but that is, as I understand it, the current
status.
We have worked with the multi-hazard mitigation council
that--the briefing that I received a number of months ago, as
they were winding down the report, the scientists that they
used on the report, I think it's going to be a very valuable
tool, and I also am anxiously waiting for that report to be
provided to us.
Mr. Blumenauer. Well, it would be helpful if we could pin
this down and get a specific answer about where this is. I was
told that it had been cleared by FEMA and had been sent off to
the Department of Homeland----
Mr. Maurstad. Sir, we have seen a draft of it, and I am
waiting for the multi-hazard mitigation council to provide me
with the formal report. And it was my understanding last week
that it was on its way.
Mr. Blumenauer. Good to know. I am unclear about the
progress on the implementation on the regulations for the Flood
Insurance Reform Act.
What are some of the critical issues that have been
highlighted by your consultation of the States and communities,
and when are we going to see that promulgated?
Mr. Maurstad. What--I guess I am not sure what--are you
talking about the agent training component that you asked us--
--
Mr. Blumenauer. The regulations that would be attended to
the flood insurance reform.
Mr. Maurstad. Are you talking about the severe repetitive
loss pilot program?
Mr. Blumenauer. There are regulations with that, and I
thought there were some other regulations that had not yet been
promulgated.
Mr. Maurstad. Well, we just received the ability to
transfer the funds from the National Flood Insurance Fund to
provide the resources to start the severe repetitive loss
program.
We held that consultation meeting, actually, late last
year, as required by the legislation, and are now in the--
beginning with the authority that happened a couple of days
ago, with beginning the rulemaking process.
Mr. Blumenauer. And when do you think the rules will be
finished?
Mr. Maurstad. Well, I am hopeful----
Mr. Blumenauer. This is a conversation you and I had 6
months ago.
Mr. Maurstad. Well, we didn't have the authority six months
ago to be able to begin the pilot program. We now have that
authority. I am hopeful that if we get some of our--when we get
some of our staff back from the field that are still helping
the respond and recover to Katrina and Rita, that rulemaking
process as we both know it, some time in the March/April time
frame of next year.
Mr. Blumenauer. I had submitted a series of questions after
our April hearing and resubmitted them in writing in September.
To the best of my knowledge, we haven't yet--and I understand
things have been going on----
Mr. Maurstad. That's correct, and I--as I indicated to Ms.
Waters, I made a commitment to her to work with the other parts
of our department to get those answers back to you some time
next month.
Mr. Blumenauer. I would just conclude--one thing that would
be useful to have, because we have been having conversations in
the past--I appreciate your courtesy--but by the nature of the
business that FEMA is involved with, there is always something
going on. You would wish there wouldn't be, but the reason
you're there is because we have emergencies. And we had four
hurricanes last fall; we've got Katrina; we've got a whole
range of things.
I have been working with FEMA for the last 5 years to try
and get resources to the Agency, new tools, money, and
authorization so that it's easier for you to do the job. And I
have appreciated the professionalism with a whole host of folks
who have given us back information as we have tried to craft
legislative responses.
What would be helpful would be to have a candid response
from the Agency about what you need to be able to deliver
what's in the pipeline, what we have been trying to do. I don't
like being in a sort of a give-and-take situation because I
have tried to be on your side for 5 years. And I see some of
our old friends in the back of the room who have been there and
have been constructive.
But what would be very helpful for some of us who have been
trying to be constructive partners with FEMA is to understand
what it is that we can give you to clarify, to provide
resources, and to move us forward.
We are going to be spending--I think we're spending $14
million an hour, last I calculated. I mean, it's--after a while
it's real money. But number of things that we have talked with
you about here, and that the committee is looking at, are not
that expensive in the overall scheme of things. But they will
make a huge difference on saving long-term costs, helping
people get out of harm's way, and helping us get ahead of the
curve, rather than you folks scrambling to catch up.
And so my specific request is to have some of your
certified smart people who have been through this before and
given what's happened informed by your year or so in this``
squirrel cage,'' get some specifics so that we can go to bat
with our authorizing committees and our appropriating
committees, to make sure that whatever it is to clear up
ambiguity or to provide resources happens, so we're not in a
situation like you're telling me, that something we passed last
year we're going to talk about maybe promulgating regulations
next year.
I am interested in ways that we can get ahead of the curve,
and I look forward to working with the committee and the
committee's staff on these recommendations so that we can--so
we're not going to rehash this. And I offer it from the
perspective of somebody who has been trying to work with you
folks for 5 years.
Mr. Maurstad. Well, sir, we--as I have indicated before, we
appreciate your support. My Member of Congress, of course,
worked very closely with you--now retired Congressman Bereuter.
I have had conversations with him. We appreciate your support.
The rep loss pilot program, now that we have that
authority, provides some assistance for staff in that area that
we didn't have the capability of before, but we will certainly
look at your request and have that continued discussion with
you.
Mr. Blumenauer. Thank you. Mr. Chairman, thank you for your
courtesy----
Mr. Pearce. I thank the gentleman from Oregon. And I just
have two last questions, and I appreciate your indulgence. You
have been very gracious with your time, and you got caught in a
vote, and the first hearing lasted somewhat longer.
Mr. Jenkins, I am going to ask you last--but you're going
to be thinking about it based on your previous work--of the $22
billion or $23 billion in losses that are declared on this
page, how much problem do you think--how many dollars problems
would you think would be involved in there based on the lack of
oversight and people overestimating? So that will be the wrap-
up question.
Mr. Maurstad, you indicated legitimacy to upping the
ceiling, the cap. If we change from $250,000, say, to
$500,000--that's a nice, round number; it's twice. If that were
the case, how much would your columns change by here, and how
much would you have changed in Katrina?
And then I suspect if you talked about raising the caps--
which you said the Agency has talked about--you have gone back
and plugged in to the losses for 2004, that was $2.28 billion--
how much would those losses have gone up through the increased
caps, and how much more exposure do we have here? If you can
give those----
Mr. Maurstad. Well, I would try--your--an answer to your
question would require a number of assumptions based on how
many people that currently have the maximum amount of
insurance, $250,000, would pay the additional premium to go to
a higher level. That would be the first assumption that comes
to my head that would have to be made.
But most importantly, what we would do is we would go back
and actuarially determine what the additional premium amounts
would need to be, given the higher limit of insurance that we
would be making a commitment to paying for, if there were a
loss, and determining what those appropriate premium levels
should be.
And then, you would--we would have to determine--and it
would be most accurate after the fact--how many people decided
to increase their limit of insurance, pay that additional
premium that would then provide the additional resources to pay
claims.
Mr. Pearce. Am I to understand, then, that you have not put
in any projections? As a business owner, I would tell you how I
would approach it. I would approach it to the maximum risk.
That is, the maximum number people take it as possible, and we
suffer the maximum number of losses. That is, this loss sheet
extended to the maximum. And then you would project the
increase of premiums.
And am I to understand that even though you are suggesting
that we want to go up on the caps, you haven't figured out what
it's going to actually cost the taxpayer in New Mexico?
Mr. Maurstad. Well, again sir, as also a former small
business owner, I would look at things in a certain fashion.
And I know, from my experience, that the actuaries are going to
look at it in a whole other fashion to make sure that what's
being done is done----
Mr. Pearce. I understand that. We're just talking about a
business model.
Mr. Maurstad. But----
Mr. Pearce. If I'm going to come to the Congress and
suggest that we up the caps, I think I would be prepared to
say, ``If we did that and if everybody had upped their premiums
and upped their purchases, the losses, instead of $22 billion,
would be $33 billion,'' or something. I just think that's a
fair question for us to ask, and a business-like question to
ask, so that we know the stakes of going up on our premiums.
And, likewise, because this is an extraordinarily high loss
year, it would be very, very pragmatic to scoot back to 2004,
which was the period of greatest loss, but at 1/10th the level
and say, you know, ``We are not going to always get these big
years, but even in this bad year, this 1/10th year, here is
what we would have expected.''
Mr. Maurstad. That modeling would go on. And again, we
would base it as--absent any other substantive program
changes--based on an average loss year, as to the ability to
generate the necessary premium from the policy holders to pay
the claims that come in during that year.
Mr. Pearce. I understand that. My point is that you said
that you saw certain legitimacy to the idea, that you all had
talked about it internally. And to talk about it internally
without measuring the possible consequences, to me, is upside
down, that as we are talking about the legitimacy, we should be
talking about the consequences.
Mr. Jenkins, would you like to wrap up? We really do need
to finish this.
Mr. Jenkins. You asked about the potential extra cost.
Mr. Pearce. Yes.
Mr. Jenkins. I would say that, basically, if you take the
Isabel model and assume that it, with some adjustment, sort of
applies to this, you had roughly 10 percent of people who had
an opportunity to appeal their claim did appeal their claim.
And then, of those people, half got more money, and they got
about 10 percent more than their average claim for various
reasons.
So you could say, based on that model, that whatever this
estimate is, it's probably not unreasonable to assume it's
about 10 percent higher. Particularly if you have an appeals
process.
The thing that--the mitigating factor in that compared to
Isabel is that a lot of these people whose homes have been
completely wiped out are going to get the maximum that their
policy pays, so you're not going to have some of the issues, in
terms of what the repair costs are, and the schedule of costs
that ought to be used, and that kind of thing, because it's not
an issue for those particular claims.
Mr. Pearce. Using your knowledge of the system, did you
have a chance to review the charts----
Mr. Jenkins. No, we have not seen those.
Mr. Pearce. Just going to assume severity and the bulk of
the losses are going to occur in Jefferson Parish, where there
is a loss of $75,000 per unit projected, and 73,000 homes, a
loss in Orleans Parish, of 100,000.
Using your estimates, would those severity calculations be
fairly accurate, or is it just too far out of your realm to
guess?
Mr. Jenkins. Just--we would really have to look at it. I
mean----
Mr. Pearce. Okay, all right.
Mr. Jenkins. Just let me give you additional information.
Mr. Pearce. Yes.
Mr. Jenkins. We have some data, this October 13th data that
we got, and we know it has to have an error in it. The average
claim that that data shows for Louisiana is $663,000. That's
pretty unlikely that that's the actual average amount being
paid.
Mr. Pearce. Right. Thank you both, and again, Mr. Maurstad,
these are very difficult days, very difficult times, and the
questions that we have to wrestle with are tremendous. But the
ones that you have to see firsthand are even worse. So I thank
you for your service and thank your Agency.
The chair notes that some members may have additional
questions for this panel, which they may wish to submit in
writing. Without objection, this hearing record will remain
open for 30 days for members to submit written questions to
these witnesses and to place the responses in the record.
[No response.]
Mr. Pearce. Hearing none, this hearing is adjourned.
[Whereupon, at 1:15 p.m., the subcommittee was adjourned.]
A P P E N D I X
October 20, 2005
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