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A spike in federal flood insurance rates has Congress considering a delay in premiums

A man walks through flood waters caused by Hurricane Sandy, on October 29, 2012 in Cape May, New Jersey.
A man walks through flood waters caused by Hurricane Sandy, on October 29, 2012 in Cape May, New Jersey.
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Some Southern California residents have been surprised to discover that despite living in an arid climate, their home is actually in a flood zone. That means they have to buy flood insurance – which can be expensive.

On Capitol Hill Tuesday, members of Congress considered whether a new flood insurance law should be delayed.

Federal flood insurance has been around for almost half a century, providing coverage when insurance companies won’t. But the program has been perpetually starved for money. Realtors asked Congress to stabilize the program and a reform measure was passed last summer.

At a hearing Tuesday on the Biggert-Waters Flood Insurance Reform Act, co-author Maxine Waters told her colleagues on the House Financial Services Committee: "The intentions of our well-meaning piece of legislation has caused grief to families from coast to coast."

That grief has come in the form of gigantic rate increases.

Waters cited the case of a Pennsylvania couple who discovered their insurance was going to jump from $3,300-a-year to $59,000. They decided to try to sell the house. Lawmakers from across the country jumped in, citing their own statistics.

The rates are based on updated maps from the Federal Emergency Management Agency, identifying which areas are most likely to flood in the event of a 100 year storm. That’s not a storm that occurs once a century, but a storm that has a 1% chance of occurring in any given year.

Some homeowners have disputed the flood maps.

Jim Harlow of Crestline says FEMA agreed there was a mistake on the map and put it in writing. But in October, Harlow's mortgage company notified him it was going to charge him $400-a-month anyway for flood insurance. He's now fighting with his mortgage company and FEMA to stop the insurance premiums.

FEMA head Craig Fugate told the House Financial Services Committee the flood insurance program is currently $24 billion in debt. To put the program on sound financial footing, rates are designed to rise 20-percent a year for five years. Fugate told members we need to decide: "how much risk as a nation we can afford  to subsidize and insure that we’re getting return on that investment." 

Members complained about homes that have been abandoned because owners couldn’t afford insurance, leading to the downfall of an entire neighborhood. But Fugate said other communities have turned areas at high risk for floods into open spaces or tightened building codes to build a few feet higher, lowering the cost of flood insurance.

But not everyone was sympathetic. 

Republican Congressman Lynn Westmoreland of Georgia argued that taxpayers across the nation should not be picking up the tab for those who live in flood-prone areas.

"Is it fair," Westmoreland asked, "for everyone to subsidize the insurance of a few?"

Congresswoman Waters has introduced another bill that would delay the increase in premiums for another four years. But the measure doesn’t address the underlying problem: storms like Hurricane Katrina and Superstorm Sandy are happening more often, causing more damage in more heavily populated areas, and costing the nation more money.