Why Ocasio-Cortez should make flood insurance reform a priority

Getting a seat on the House Financial Services Committee has long been a coveted assignment for freshman lawmakers of both parties, in no small measure because of the opportunities it affords to build their fundraising war chests. Needless to say, that is probably not the top priority for its most notable newly minted member, which is rising Democratic political star and ardent Wall Street critic Alexandria Ocasio-Cortez of New York.

She has already sketched out some issues she would like to tackle while on the panel, including postal banking, student loans, and reimposing the separation of commercial and investment banks under the Glass Steagall Act. However, there is another pressing item high on the 2019 agenda, one that touches on her interests in both climate change and income inequality. Ocasio-Cortez could help break what has been a years long stalemate in reform of the troubled National Flood Insurance Program.

{mosads}Created in 1968, it has served as the primary source of flood insurance coverage in the United States. Extension of the National Flood Insurance Program, which is set to expire at the end of May, is a piece of unfinished business from the last session of Congress. The House indeed passed a extension in 2017, with a set of reforms that looked to address such issues as mitigation, mapping, encouraging development of the private market, and dealing with repetitive loss properties, which account for 1 percent of policies but 25 percent to 30 percent of claims.

Reform was a priority of former House Financial Services Committee Chairman Jeb Hensarling. He made no secret of his desire to see the National Flood Insurance Program completely privatized. But one need not go as far as Hensarling to see that the National Flood Insurance Program, which has been on the Government Accountability Office list of high risk programs since 2006, is unsustainable as currently constructed. Over the past 15 years alone, it has borrowed nearly $40 billion from the Treasury Department to pay storm claims but repaid less than $3 billion of that total. The nonpartisan Congressional Budget Office projects it will lose, on average, up to $1.4 billion annually for the foreseeable future.

Hensarling faced pushback on his reform in the Senate, including from fellow Republicans. For her part, new House Financial Services Committee Chairwoman Maxine Waters shares similar priorities such as investing in more mitigation, more transparency, and more accurate flood maps. She is skeptical of the private market and could seek to have the remaining $20.5 billion of debt erased, which was a nonstarter plan for Hensarling. Moreover, Waters has declared that her priority is to “help homeowners, businesses, and renters” get better access to affordable flood insurance plans “by taking sensible steps to stabilize flood insurance premiums.”

The first area where Ocasio-Cortez could shine a light on is the inequities inherent in the National Flood Insurance Program. It has long been a goal of reform to revamp the various subsidies so that they explicitly help those most in need. The reality is that those subsidies flow mostly to the rich and the upper middle class. In 2012, the Government Accountability Office found that 29 percent of subsidized policies were in counties in the top decile of median household income, compared with just 4 percent in the bottom decile. It also found that 65 percent were in counties among the top three deciles, compared with 10 percent in the bottom three deciles. Finally, it found that 86 percent were in counties in the top half of the income distribution, compared with 14 percent in the bottom half.

The 2017 reform legislation made some modest efforts to introduce an affordability component, but a more radical rethinking is in order. This should include raising rates for those who can afford them to finance help for low income owners, not only with affordable premiums but with raising and hardening their homes, as well as voluntary buyouts for those who have faced repetitive losses. The cause of affordability must no longer be used as a pretext to protect the interests of the primary beneficiaries of the National Flood Insurance Program, which are big developers and other real estate firms that want to build on drained wetlands, coastal barrier islands, and other vulnerable areas, while letting taxpayers foot the bill.

This is where Ocasio-Cortez could propose one very transparent and revolutionary reform that would remake entirely how the National Flood Insurance Program operates. In short, she should push for the National Flood Insurance Program to be barred from writing any policies for new construction in 100 year floodplains. This would not harm any existing policyholders. It would not invite “cherry picking” of the private insurance industry. It would simply apply the hippocratic oath of doing no harm.

The recent national climate assessment projects sea levels to rise by up to four feet by the end of the century. This is enough to force the relocation of hundreds of thousands, and potentially even millions, of Americans to higher ground. The first step toward adaptation and resilience is to cease making that problem worse by ending government policies that explicitly encourage more risk. The congresswoman from the 14th District of New York thus faces an early test in shaping how we prepare for that future.

Raymond Lehmann is director of financial policy at the R Street Institute.