The cato institute. Is here to talk about ways to reform the National Flood Insurance Program, which has to be free off the rise by the end of september and is nearly 25 billion in debt. Good morning. First explain what the National Flood Insurance Program is and who uses it. Guest its the main way people who live in floodplains or by oceans or anywhere where they like it flooded, how they get insured. There is now a little bit of private insurance. More than 90 of people get it through this. The big problem with the National Flood insurance is it does not really function all that much like insurance. For instance if you have a house and live in washington, d. C. , the more expensive your house is, more prone it is to some kind of potential damage, can you pay more insurance. National Flood Insurance really does not work all that well like insurance. It does not increase the cost if you live close to a floodplain. One of the biggest problems in our study that came out the other week is we have pretty good data that describes what the risks are for people who have houses in floodplains but we dont use the data. We used outdated data. Host one argument against the program is it incentivizes people to live in areas probably where they should be living. Guest thats a really big problem. I think we started in the 1960s. Part of it was that people have these houses in floodplains. On tv ofd be scenes people being flooded out and the government thought, why dont we just ensure the houses already there and in 25 years they will be basically depreciated and we will have to worry about this anymore . The problem is one Flood Insurance came into existence, people saw the need the ability to build without having a gigantic risk in a floodplain. It exacerbated the problem of having damage. Host you wrote, the main problem is it is unfortunately private insurance. It does not assess flood risk for each property. Premiums reflect average historical losses and a risk zone. The floodplain maps determining a propertys risk zone are often several decades out of date. What does that mean for this program . Guest it means it will continue to lose money as long as we have it in place. Attempt when i set this up for the government to basically breakeven. They thought they were charging exactly what they needed for this program to be cost neutral. What they did not do is put into account some kind of premium to set up some kind of special fund in case there was a catastrophe. We have occasional Flood Disaster fees in the united states. Those catastrophes, most notably katrina and rita, have cost us billions of dollars. The program is currently 25 billion in debt. Host i would private insurance work in this situation . Guest different than the National Flood insurance, the first thing is they would look at each individual house and assess the risk associated with that house. They would not use decadesold data. They would be much more precise about the probability of flood damage in a year. They would charge enough money so that if there were some kind of catastrophe, they would have enough money in reserve to cover such a catastrophe. The last thing i want to point is as that there perspective that this is something we do for poor people who live in floodplains. I grew up in a community in Central Illinois where there are a number of houses on a floodplain. They are not the big beneficiaries. The big beneficiaries are people who live along the southeast coast. They are vacation homes. This is a very regressive program that is mainly to wealthy people. Host talking with ike brannon. We want to take your calls and the issue. These are the essential time zones, call 202 7488000. If you live in the mountain and pacific time zones, 202 7488001. If it were not for the last few big storms, Hurricane Sandy and katrina, do you think the fund would be solvent . Guest he would be close to solvent, sure. You just cant take up the two were three main incidents and say this would be working. This is the nature of the weather. It is unpredictable. You have a few extreme events that will always drive all causes. They never did set this up accurately reflecting the expected costs of providing Flood Insurance. Host this has to be reauthorized by the end of september. If not, what happens . Guest what i suspect will happen, there is not a lot of time. There are holidays in the third week. I expect they will do a three month extension and try to finish this by the end of the year. Is one of these programs that is so politically sensitive. It is hard to see congress not reauthorizing this for even a short period of time. The worry is if they run out of time in the calendar year 2017, what they might do is keep issuing a series of extensions and not deal with it and leave the status quo as is. That would be politically easy to do. In 2012, congress did change the National Flood Insurance Program. They tried to charge people something close to their expected cost of providing them insurance. As soon as people had to write bigger checks they complained to their congressman. Congress quickly repealed that aspect. The one good thing the bill did is it did create a vehicle for insurers toran offer Flood Insurance. I think thats going to make it easier if congress were to try to introduce more private insurance into the next. Mix. Host people calling from coastal areas. Morehead city, north carolina. Lewis on the phone. Good morning. Caller good morning. Host what is your question . Caller i have a comment. I deal with this all the time in the coastal area. One that does not require insurance vicariate anyhow. Im thinking in some cases where we have a Flood Disaster that outens the government helps people who did not have insurance. Tohink some of that expense solve the problem, the government is not paying in the money. They are taking it out of the flood reserves for people who dont even have insurance. My comment is the government should subsidize the fund if theyre going to pay for noninsured people. I have lived down here for over 20 years. Never had a claim. It works fine. We have been lucky and have not had a lot of disasters and that i think isthat area, congress paying for noninsured people. Guest thats a really good point. We have created this situation were people do get flooded and there is an outpouring of demand that we do something for them. It becomes difficult for the federal government to make that credible promise. If youre in a flood zone and dont have insurance and dont do anything, we are not going to help you. There was a famous paper written economistso by two who won the nobel prize for this article. One example they point out is that the optimal solution for a floodplain is for the federal government to say we are not going to allow anybody to build there. The risk is too high. In a lot of places that would probably be the optimal solution. Nearlyople to build, its impossible for the government to save we are not going to help you. No one thinks that the credible promise. The example they gave his precisely what the caller is talking about. Host we have a question from twitter. How many times as a homeowner allowed to file a claim for Flood Insurance . Afterpremium insurance the claim . Guest they dont go up that much after a claim. It is not like Auto Insurance where the ssu more. Where they assess you more. The date of the federal government uses to assess your risk of being flooded is based andhe general area you live on what happens in the floodplains a few decades ago. The most frustrating thing for economist who deal with this is fema has. Updated maps. We have much more accurate maps that describe the true flood risk on most coastal areas. Congress prohibits us from using them. It is as if you had Auto Insurance and you are 45 years old but we will use your driving record from when you were in your 20s. Host kevin on the phone. Good morning, kevin. [laughter] all right. Adams, oregon. Lets talk with joe. Have, you probably will but i am definitely against the idea of Flood Insurance as is. Dry landn a very high, with green fields are required to have federal Flood Insurance. A 100 year flood is not even possible here. You can drop down the Columbia River court and get flooded, and it certainly makes our mortgage excessively high. Butre not going to flood, our premium is going to pay for somebody else who builds in a floodplain. That is excessively unfair on a tax basis. Guest thats a good point. , acoauthor on this report law student at columbia university, he made a point that if you look at how we ensure for wind damage, it is totally different. No federal wind insurance. Wind, youe damage via go through your normal homeowners policy. The company that offers insurance can take into account if you live in oregon where there are virtually no such thing as thunderstorms and the risk of a high wind is slight, your premiums will be much lower than someone who lives in Oklahoma City in tornado alley. Flood insurance really doesnt work nearly that way. Bit, weoking forward a have a story from the new york times. Hurricane busy made season may get busier. The atlantic Hurricane Season may be the busiest season since 2010 and likely to produce two twomajor hurricanesfive to five major hurricanes. Guest i worked on the hill for a decade. My first boss told me my first nohat nobody ever does politician ever gets rewarded for doing something before everyone figures out theres a problem. I dont think so. The chairman of the House Financial Services committee, they had jurisdiction over this, i think he is trying to do something in anticipation of future floods and future damages. He is trying to think 10 or 20 years ahead. The typical congressman, will think about this in a simple shortterm, costbenefit analysis. Very few people will realize we save the federal government tens of billions of dollars, but a few people will be angry because they will have to pay more for their Flood Insurance. Im not quite sure how you change that dynamic. I think if we do have a hurricane coming up in september, october, that is going to exacerbate the problem. Florida. Mer land key, eleanor on the line. Caller good morning. Thank you for my call. I write Flood Insurance down here in the florida keys. Our housee issues are is elevated based on the base flood level. The government comes in and so the water is going to get eight feet high. In order to keep your rates lower, your house has to be above the eight foot level. I dont see that happening in the areas that flight continuously along the rivers. I dont see them elevating the houses the way they force us to do a down here. On the mobile home owner. I cannot afford Flood Insurance. If i get flooded out, i will have to carry that cost by myself. When premiums run anywhere from 200 for an elevated home to 2300 a year for Flood Insurance based on the groundlevel home built in 1953, you can understand when those numbers came out that the expense of making the actuary rates we dont even know what that term means. People would pay 30,000, 40,000 a year. Be justemiums need to as high straight across the board for homeowners. Rich people come down here. They dont buy Flood Insurance. Is not reallyes there because the flood level that a 250,000. 400,000 toing 600,000 homes with replacement costs. Something needs to be done. It needs to be brought to the top and more hosting to be elevated in long island. I see they are elevating old homes there. That will definitely be an issue. This needs to begun with. More home seem to be elevated after katrina. I saw pictures of homes only elevated four feet. Is not high enough to prevent flooding in the future. Guest i was just in Rockaway Beach last month. I think the most interesting thing about being there was seeing the type of flood remediation that was going on. Awaying houses further from the beach and putting up more barriers and planting more types of durable grass to make sure the water gets soaked in before it floods. Had a fairyou insurance, you and not to sell the federal government doing such kind of mediation. Insurance doing more to ensure it allays some of the risk involved in moving where they are going to live. In some places if you are close to a river, it probably doesnt make sense for those houses to be there. The federal government in my hometown bought out a few properties they get flooded all the time. Which you would have seen have the federal government not step in and provide National Flood insurance. Insurers would never have offer that insurance to begin with. Twitter owning a home at the time would be out of luck. Host we have a tweet from james. The neighbors flooded twice last year. They cant get another policy unless they raise their house. Judy on the line. Caller good morning. I would like to know why is the federal governments business. Pennsylvania i had to pay for subsidence insurance on my home. That was something the Mortgage Company required in case we suffered from a sinkhole. When i lived in california, i had to pay for earthquake insurance because that was something the Mortgage Company required. Why is the federal government involved in this one issue . It is the individual homeowners is possibility. It is not the federal governments responsibility. All fema is required to do is to go in and help people that have shelter and food entering the er until they can get three double water until they can get their issues resolved. I dont see why the federal government is involved at all. Guest that is more or less my perspective, and my coauthor s. I think your point is right. There are other kind of risks homeowners face for which the federal government does not feel compelled to ensure. Insurance is flood really all that different from subsidence insurance or earthquake insurance or wind damage or anything else. Its almost a historical accident. We have a few storms that were particularly severe when the government seemed to have more money and annuity do with any thought this would be a good way to do it. And they thought this would be a good way to do it. Host what kind of smart reforms would you suggest . Congressmannk what interlink is trying to do is a good way. Try to find a way to get the federal government to stop providing insurance and get the private insurers to step in. They have already indicated on the opening we have given them they would very much like to provide this. The other thing we can do to help this is fema can give them accurate updated data that shows what the flood risks really are for people in floodplains. If he had that situation, you would see more flood remediation instances he insistenc of the insurance companies. Host frank . Caller i think it is femas funding. Fema collects money in florida on a larger scale for Flood Insurance than it actually pays out. Which is good at putting a tax on all insurance policies, they could eliminate Flood Insurance and step in the areas where there are problems like hurricanes and tornadoes. Fema goes in everywhere and rectifies problems from flooding, tornadoes, earthquakes, and they are not getting funding from these areas. Guest this brings up an interesting point. It may be a little tangential but it is to what you are saying. 15 or 20 years ago when i was first started working for congress, congress would allocate each year a few billion dollars. That would be what is used for various emergencies. In any given year you will have excessive fires in the Pacific Northwest or tornadoes in oklahoma or illinois or missouri, a hurricane in florida or the gulf coast. On average they even out. One or two years you have a bit of money left in the fund. May be some years he would have to congress would do another appropriation. Some point along the way they realize it make more sense politically to not have any money set aside each year and have a special appropriation in order to show everybody they were doing something. I dont think this is a good way to do it. What we need to think about in terms of the various risks in this country is we are a very large country, but it is one country. We should not be playing off one state versus another state. Part of the taxes people pay alleviate the damage done by particularly severe disasters. It would be really problematic if he said let floridians take care of dance that happens in florida. North carolinians take care of damage in north carolina. There are some kinds of damage that are not that severe that other states should take care of. In general im in favor of federalism. If he can become the state level, it should be done at the state level. When we are talking about r damagedamage weathe the government needs to get involved in is heavy damage like Hurricane Katrina or sandy. I think all 320 million americans are in this together and we need help. Host good morning, linda. Caller good morning. When people are in tornado areas or wildfires or mudslides, pretty much anything but floods, are there lowinterest federal loans they can apply for to rebuild which would basically be the same thing as Flood Insurance . Rebuildingng via lowinterest federal loans. I do believe we are all in this together. I think the Flood Program initially started back when most of our commerce and our business was done in areas that were prone to flooding. Economically it made sense for all of us together in the country, all american citizens ultimately benefit financially. And of course the human toll involved. There are other avenues for people to rebuild in areas that are flooded, correct . Guest if your house is damaged by a tornado in Central Illinois, you might have access to a low interest loan. , if thats howe you decide to do that, yet to pay the money back. Typically you buy private insurance and that private insurance more often than not has some kind of writer that says they will rebuild your home if its damaged due to a tornado. Flood insurance is different. We allow people who get flooded on multiple occasions, and the government will step in and cover their costs and the rates in general. They do not reflect the flood risk. You are right in the sense we had People Living in floodplains since almost the creation of this country because in general living by water is appealing and aesthetically pleasing, and also its important if youre involved in commerce to live near the coastal waters. The National Flood Insurance Program is greatly exacerbated increased the number of people who live in floodplains. These people who built a new house by the ocean or by a river dont have to fully account for the costs involved in building there. The risk is basically taken over by someone else. Host the last call for the hour comes from i guess linda was the last caller. We will thank ike brannon. Thank you for your time this morning. We appreciate it. Coming up, Senior Pentagon correspondent aaron mehta will be here to talk about Americas Nuclear arsenal and if our Missile Defense systems are ready to defend against potential attack. In our spotlight magazine section, puppies and World Magazine about why states are changing the minimal age of marriage. Emily belz will be here to talk about her piece. Stay with us. Next week at 8 00 eastern on cspan, on monday, former National Security advisers who served last two president s, including stephen hadley, advisor for george w. Bush. Im a little worried. We are in a dangerous period with russia. Putin has decided americans are antirussia. There is no constituency for u. S. Russia relations in the united states. He is basically saying if you think im an enemy, i will show you what its like to have an enemy in russia. Tuesday, the future of the internet. White house interim chief digital officer. We are talking about how certain platforms provide people with information that reaffirms what they already think. It is not like facebook said, hey, you are conservative. I will keep showing you conservative content. They said i will show you things from the people you know and i will show you concepts from the pages you like. When you start clicking on those things, i will figure out what content you seem to like and keep showing tomorrow that. If facebook had not done that, we would not be having this conversation. They would not have grown to the scale to which they grew today. For forum on the changing role of cities. Former mayor of rio de janeiro. This is a transition period. I think cities will play a major role fighting against populists. Democracies see this as a Great Machine the change was going on. Thursday, they look at the opioid epidemic, including Ohio Attorney general who is suing several Drug Companies for their marketing of opioid painkillers. What is different about this drug probably have is how pervasive it is. It is everywhere. It is in our small communities, in our cities, and are most affluent suburbs. Friday, the conversation with elena kagan. You said at the beginning of our conversation we are not appear democracy. We are a constitutional democracy. That means the judiciary has an Important Role to play in policing the boundaries of the other branches. That can make the judiciary and unpopular set of people, when they say to a governor or president or congress, know no, you cant do that because its not in your constitutional powers. Next week it 8 00 eastern on cspan and cspan. Org. Was sent using the free cspan radio app. Listen using the free cspan radio app. Host welcome back. Aaron mehta is with us,
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