Swimming in Subsidies
The National Flood Insurance Program must dry up.


Already, the news of the massive flooding in the Midwest has disappeared from most newspaper front pages. And, indeed, the worst is probably over: hydrologists believe that the Mississippi River crested on June 22 and 23 and probably will not flood again in 2008. Although it is cold comfort for people who have lost homes, cars, and loved ones, the nation avoided any enormous levee breaks in heavily populated areas, dispensed relief efficiently, and kept loss of life to a minimum. By some standards, America’s relief efforts seem to have worked.

But this apparent success hides one simple fact: We got lucky. An extra foot or so of water would have inundated towns, caused billions in damage, and killed many more. Despite billions in subsidies for breakwaters, flood barriers, relief, and flood insurance, there’s little hope of solving America’s flooding problem anytime soon. Unless the nation wants to go on risking massive loss of life from flooding every decade, we need a fundamentally different policy based on one simple principle: the government should not subsidize any new development in areas likely to flood.

To begin with, using tax dollars to build new breakwaters — a practice many conservatives show a strange attraction for — is almost always a bad idea. Environmentalists are mostly right when they say that wetlands do a better job controlling floods than government-built rock-piles. And longstanding Army Corps of Engineers policies — beginning with 1936’s National Flood Control Act — have encouraged plenty of development in places that probably should have been left wild. In a few cases, cities might well follow the example of Grand Forks, North Dakota (inundated in 1997’s Red River Floods) and use some likely-to-flood areas as parkland, golf courses, or wilderness. Most often, however, there’s little choice but to strengthen the existing breakwaters: it’s not realistic to argue that every flood prone town should move.

The real problem — the truly enormous subsidy for building in flood-prone areas — lies with the National Flood Insurance Program (NFIP) that provides individual coverage for homes and small businesses. Although changes that both houses of Congress have passed will correct its most obvious absurdities — insuring second homes against flood and rebuilding properties dozens of times — NFIP remains deeply troubled. Each year, it requires massive subsidies. Indeed, Congress had little choice but as to forgive the $18 billion in debt that it has run up since 1999 (both houses of Congress have voted to do that). Likewise, it has had very mixed results in encouraging safer building. The flood maps used to set rates have only a vague relationship to actual risk and, as a result, the rates that individual property owners pay have a lot more to do with guesswork than actuarial calculation.

Even more seriously, the fundamental standard that the program sets — homes can be built on areas likely to flood every 100 years but not more often than that — encourages development. A home on a 100-year flood plain has more than a one in four chance of flooding during a typical 30-year mortgage. This is simply too often. And adding wind damage to the flood program — something the House of Representatives and some insurance companies favor doing — would make things even worse.

Although there’s no way to terminate flood insurance tomorrow, Congress needs to spend the next few years looking over the program very carefully. In the long run, the United States needs a strategy that will result in private, self-sustaining flood insurance. Among other things, creating a viable private flood insurance market will require efforts to improve the quality of flood maps and encourage property owners to strengthen their own homes. Individuals who wish to live in flood-prone areas and developers who wish to build there shouldn’t face undo restrictions on using their own property. But they shouldn’t expect a dime for subsidized insurance, roads, breakwaters, schools, or anything else that taxpayers will pay for rebuilding.

Gilbert F. White — a one-time president of Haverford College who is considered the father of floodplain management — put it simply: “Floods are acts of God,” he wrote. “Flood losses are acts of man.” And that’s the bottom line.

 – Eli Lehrer is a senior fellow at the Competitive Enterprise Institute.