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White House proposes canceling $16B of flood insurance debt in program overhaul

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White House proposes canceling $16B of flood insurance debt in program overhaul

The White House has outlined its own plan to overhaul the National Flood Insurance Program with proposals that split industry groups and drew praise from a key Democratic lawmaker.

Office of Management and Budget Director Mick Mulvaney sent a letter Oct. 4 to congressional leaders detailing proposals to reform the embattled NFIP that largely mirrored a slate of bills passed by the House Financial Services Committee in June.

The proposals come as part of a $12.77 billion emergency supplemental relief package to help residents in hurricane-ravaged Puerto Rico, the U.S. Virgin Islands, Florida and Texas.

Among the 15 points in the plan is a recommendation to cancel $16 billion of the program's $24.6 billion debt. House Democrats have long advocated for canceling the entire debt, while House Republicans have summarily rejected the idea.

"Because the need for this funding arises from unforeseen, unanticipated events, this debt cancellation should be provided as an emergency requirement for budgetary purposes," Mulvaney wrote in the letter.

Rep. Emanuel Cleaver, D-Mo., said in a statement to S&P Global Market Intelligence that he is "encouraged" Mulvaney proposed to clear $16 billion of the NFIP’s debt.

Cleaver is the ranking member on the House Financial Services Committee's Housing and Insurance Subcommittee. He agreed with Mulvaney's sentiment but urged that the entire debt be forgiven, as most of it resulted from “unforeseen and unanticipated” events in the wake of Hurricane Katrina and Superstorm Sandy.

NFIP has about $30.4 billion of borrowing authority, and with flood claims that may top $28 billion from recent hurricanes, the Federal Emergency Management Agency, which administers NFIP, will not be able to pay out those claims if its debt limit is not increased or part of its debt eliminated.

The letter also comes at a time when the program needs to be reauthorized. Lawmakers passed a short-term reauthorization of the program until Dec. 8 to give Congress more time to find consensus on what should be included in an overhaul and a longer-term reauthorization.

“It is essential that Congress work together to pass a long-term reauthorization of the NFIP," Cleaver wrote. "[It is] a need that has become more pronounced following the recent hurricane devastation."

The agency also proposed that FEMA phase out new NFIP policies for newly constructed homes and commercial properties.

Mulvaney recommended in the letter that after Jan. 1, 2021, FEMA be barred from selling flood insurance policies on any newly constructed building in an area designated as a "special flood hazard area." Current regulations require all new construction in SFHA-designated areas comply with flood-resistant standards.

Prohibiting FEMA from writing flood insurance for those properties would lead the private market to step in and insure them, Mulvaney maintained.

R Street Institute Senior Fellow R.J. Lehmann said in an interview that most of the provisions included in Mulvaney's letter are bills the House committee passed earlier this year.

"Substantively, we support all of the reforms," Lehmann said. "Some of them go a little bit further than reforms that were passed, but they were all things that were at least proposed."

Chad Berginnis, executive director of the Association of State Floodplain Managers, said in an interview that his organization does not support the proposals. The letter and plans contained in it "blindsided" him, he said.

Although Mulvaney's proposal wipes out more than half the debt, Berginnis said he is "deeply disappointed" it was tied to major reforms outside of the reauthorization process and did not forgive the entire debt amount.

House Appropriations Committee Chairman Rodney Frelinghuysen, R-N.J., said in a statement that he received the request from the White House and his committee has "already begun to move on this funding request," and will put legislation forward "as soon as possible."