Flood insurance bill seeks to curb rising tide of bankruptcies

Americans with homes that are repeatedly flooded by extreme weather events could soon have the federal government buy their houses under a new bill introduced Thursday by Rep. Sean Casten (D-Ill.).

The bill would allow the National Flood Insurance Program (NFIP), the federal flood insurer of last resort, to buy houses and zones deemed indefensible in lieu of continually paying to repair them.

“You’re not obligating people to move, but you’re saying like, you know … if you want to avail yourself with the NFIP program, we’re going to structure it toward a buyout rather than rebuilding,” Casten said.

Casten, who worked on the bill with Rep. Earl Blumenauer (D-Ore.), says it aims to solve two problems: one serious, the other potentially catastrophic.

More immediately, there’s looming the risk of  bankruptcy of the NFIP, which is straining under the weight of ever more frequent and severe flood events. Congress paid $16 billion to bail the program out in 2018, and Congress proposed another $20 billion in 2021.

That problem is only growing. Flood damage could rise more than 25 percent by 2050, putting an additional $8 billion at risk. And 14.6 million homes are at “substantial” risk of flooding, according to data from nonprofit First Street.

“Unfortunately, the National Flood Insurance Program is not designed for the reality of this problem,” Blumenauer said in a statement.

Meanwhile, the nation’s coastlines are set to rise an average of 12 inches in sea level rise by midcentury — with Florida and the Gulf Coast facing even higher water levels, according to data from the National Oceanic and Atmospheric Association.

“That’s basically saying that if you’re building a home south of I-10 in Louisiana, if you’re building that home today, it’s going to be underwater before you have paid off a 30 year mortgage,” Casten told The Hill.

It’s not only a coastal problem: in Illinois alone, over 400,000 residential properties, 50,000 miles of roads, 35,000 commercial properties, 1000 infrastructure facilities, and 2400 social and community facilities are under risk of flood, according to a national risk assessment published by nonprofit First Street.

Under the current system, the NFIP — which in large swaths of the country is the only place homeowners can secure flood insurance — only does buyouts as a last resort, and payments can take up to 5 years to reach homeowners. 

That means in practice homeowners simply repair or rebuild a damaged — or even totalled — house on the same spot.

“Except that now, because of the rate of climate change, you know that that property is going to flood again in the near term future,” Casten said. 

That means that millions of properties, which under current policies would most likely receive funds to rebuild, are in areas of worsening climate change.

“And so then two years later, it’s gonna flood again, and a year later, it’s gonna flood again and six months later, it’s gonna flood again,” Casten said.

“Because the scary reality of climate change is that it’s all not linear. It’s not ‘two, four, six’ — it’s ‘two, four, eight,’” he added. “And so you’re seeing that huge acceleration.”

Under current policies, that means a growing liability for U.S. taxpayers — and little path out for homeowners themselves. Even if they are authorized for a buyout, they are still responsible for 10 percent of the housing cost — meaning that if they can’t come up with the cash, they’re stuck. 

“Many flood-damaged homeowners have opted out of utilizing the voluntary floodplain buyout program because flood prone property buyout assistance is too slow — with some buyouts taking up to five years to complete,” Kurt Woolford, executive director of the Illinois’s Lake County Stormwater Management Commission, said in a statement.

Casten and Blumenauer’s bill would have the federal government move far more quickly to pick up the entire housing cost to move homeowners to new houses above the danger zone — leaving the old property converted to spongey, flood-fighting wetlands.

These reforms take a small step towards addressing the second, more catastrophic risk — which is what led House Financial Services Committee Chair Maxine Waters to direct members to overhaul the NFIP to begin with, Casten said. The Hill reached out to Waters for comment on the bill.

The concern is that a growing wave of uninsured losses could spread through the financial system, destroying small and midsize banks and pension funds. There have been over 5.2 trillion in losses since 1980 — 70 percent of which were uninsured, according to a February 2021 speech by Federal Reserve Governor Lael Brainard.

Large investors like Blackstone and Bank of America and reinsurers like Swiss Re carry out their own quiet retreat from endangered lowland and coastal properties, while selling off those properties to less savvy investors — and counting on the NFIP to serve as free backstop, Casten added. 

That creates the potential for a domino cascade of bankruptcies analogous to the Savings and Loan Crisis of the 1980s, which saw community banks and pension funds wiped out across the country. 

“You’re not seeing the Blackstones come in and buy,” Casten said. Flood-prone properties are instead getting spun off to groups like “you know, the local Cleveland, Ohio, firefighters pension fund.”

With the Federal Reserve showing little sign of changing lending guidelines around climate change — particularly after the March collapse of climate financial risk expert Sarah Bloom Raskin’s nomination — reforms to the NFIP are a key step in shoring up the financial bulwarks that protect American taxpayers, Casten said.

The worsening scope and increasing frequency of flood, which risks rendering large swaths of the coast uninhabitable “sucks, to be crass about it,” Casten told The Hill. It could potentially force millions to make politically difficult and agonizing choices about leaving beloved landscapes, neighborhoods and communities.

“But this isn’t a question of whether or not we can stick our head in the sand and the problems are going to go away,” he added. “The problem only gets worse.”