Millvale, PA and the Case for Universal Flood Insurance in the United States

School of Geography and the Environment MSc Elective Essay Millvale, PA and the Case for Universal Flood Insurance in the United States Andrew Tabas ______________________________________________________________ Abstract: The National Flood Insurance Program in the United States is in billions of dollars of debt and does not provide adequate flood insurance. The case of Millvale, Pennsylvania shows gaps in the program and community efforts to fill them. The National Flood Insurance Program should be replaced with a universal flood insurance program to solve these problems. Introduction The U.S. National Flood Insurance Program (NFIP) is drowning. The program reached $30.4 billion in debt in September 2017 (Lehmann 2018). The NFIP’s debt decreased after Congress forgave $16 billion, but climbed again to $20.5 billion in July 2018 (Lehmann 2018). The debt increases with each major catastrophe. Meanwhile, there is uncertainty about the future of the program, demonstrated by Congress’s passage of multiple short-term NFIP extensions in 2018 (FEMA 2018a). Why is this problem occurring? Well-developed insurance programs balance risk and solidarity (Lehtonen and Liukko 2012). Risk is “the possibility of loss” (OED 2018a). Likelihood and consequences determine risk (Perseus 2012). Solidarity is “the fact...of being perfectly united...in interests” (OED 2018b). Insurance programs bring people together as a community to share the burden of flooding. The NFIP is not financially sound because it has not struck the correct balance between risk and solidarity. Because of this imbalance, the NFIP fails to fulfill Arnell’s three “roles” of insurance: reimbursement, cost-sharing, and mitigation (Arnell 2000). The Federal Emergency Management Agency (FEMA) argues that it is time “for Congress to take bold steps to reduce the complexity of the program and strengthen the NFIP’s financial framework” (FEMA 2018a). I propose a radical, bold change to flood insurance in the U.S.: universal flood insurance (UFI). The transition to UFI would make it possible for the NFIP to match premiums to payouts. UFI would be able to fulfill Arnell’s three requirements more effectively than the current model. It would also imply a change in the way that the U.S. addresses solidarity. People tend to underestimate risk, which leads them to choose not to purchase flood insurance (Kousky and Kunreuther 2009; Kousky and Michel-Kerjan 2015; Michel-Kerjan and Kunreuther 2011). UFI would guarantee that people who need insurance have it. In addition, the current system of borrowing and debt forgiveness means that taxpayers are already subsidizing the NFIP. To analyze the NFIP and the potential for UFI, I examine key features and history of the current program, the case study of Millvale, PA, and theoretical arguments. I then lay out the full proposal for UFI and end by addressing political considerations. Methodology To test the effectiveness of the NFIP, I use a “holistic single-case design” case study (Yin 2003). I examine the single case of Millvale, Pennsylvania (PA) to show the gaps in the NFIP’s fulfillment of Arnell’s three “roles” for flood insurance (Arnell 2000). Newspaper articles, government records and publications, and informal personal correspondence with stakeholders from government and nonprofit organizations and local businesses inform my analysis. My approach is similar to that of Kousky and Kunreuther (2009), who use a case study of fluvial flooding in St. Louis, Missouri to identify issues in the NFIP. Figure 1: Sign marking the entrance to Millvale (source: taken for this paper). Key Features of the NFIP The NFIP includes the following features (Sherman and Kousky 2018; NRC 2015; FEMA 2018g): • 100-year floodplain – The area with a 1% chance of flooding. • Flood Insurance Rate Map (FIRM) - A map that shows flood risk. • Pre-FIRM Properties – Buildings constructed before FEMA mapped the area. • Grandfathering – Discounted rates for properties built before the implementation of the NFIP. • Community Rating System (CRS): A program that lowers NFIP premiums for communities that undertake mitigation efforts. History of the NFIP The NFIP is a U.S. federal program that provides flood insurance to households and businesses. The U.S. created the NFIP in 1968 after Hurricane Betsy caused severe damage in Louisiana in 1965 (Michel-Kerjan 2010). Betsy was therefore a “window of opportunity” (Meijerink 2006). Under the NFIP, flood insurance is offered by the government with the cooperation of private companies (Horn et al. 2018). The program enables homeowners to purchase flood insurance, with the recognition that it would not be able to cover extreme catastrophes (Michel-Kerjan 2010). The NFIP has had many amendments and changes since its creation (Burby 2001). In 1969, the U.S. amended the NFIP to allow the use of preliminary maps while waiting for the development of detailed, expensive FIRMs. The Flood Disaster Protection Act of 1973 added new regulations to increase community participation. These regulations included restrictions on federal aid and mortgages in areas that had not joined the program. The regulations successfully increased participation by over 500%. The 1982 Coastal Barrier Resources Act established areas in which new development would not be insured by the NFIP (FEMA 2018b). The 1994 National Flood Insurance Reform Act added several programs that encouraged mitigation by states, communities, and homeowners to reduce the risk of flood damage. The 2004 Flood Insurance Reform Act attempted to tackle the cycle of properties being damaged and repaired multiple times. The Act provided funds for states to purchase “severe repetitive loss properties” (Govtrack 2004). The next round of reforms, in 2012, fell victim to politics. The Biggert-Waters Flood Insurance Reform Act, led by the bipartisan team of Illinois Republican Judy Biggert and California Democrat Maxine Waters, would have increased rates and removed grandfathering in order to make the NFIP more financially sound (NRC 2015). Biggert-Waters was passed in July 2012 (State of Kansas). The act’s substantial rate increases, however, were politically dangerous, especially after Hurricane Sandy struck New York in October 2012. In 2013, Waters supported an amendment to prevent rate increases (Waters 2013). Then, in 2014, she supported the Homeowners Flood Insurance Affordability Act (HFIAA), which stopped the Biggert-Waters price increases and allowed grandfathered areas to continue to exist (Waters 2014; NRC 2015). The HFIAA was sponsored by New York Republican Michael Grimm (Congress.gov 2014). Grimm, whose constituents on Staten Island suffered from Hurricane Sandy, was in office only a short time before he was arrested for tax issues (Goldenberg 2014; Flegenheimer 2018). However, his brief term in office was enough time for him to lead – and gain Waters’s support for – the undoing of Biggert-Waters. One positive result of the 2012 and 2014 reforms is that pre-FIRM properties’ premiums are increasing towards the premiums of other properties (Sherman and Kousky 2018). Debates about the future of the NFIP continued. The program was set to expire on September 30, 2017. Instead of agreeing to a plan to extend the program for five years, legislators used short-term extensions to finance the program. On several occasions, delayed short-term extensions caused gaps in funding for short periods of time (Govtrack 2018). Recent extensions pushed the end date to 30 November 2018, 7 December 2018, 21 December 2018, and 31 May 2019 (FEMA 2018a). Meanwhile, NFIP premiums have been inadequate to meet its payouts, causing the program to go into debt. Congress forgave $16 billion in 2017. The NFIP therefore uses tax revenue to pay out flood claims (Lehmann 2018). In other words, the U.S. currently has a flood insurance system in which every taxpayer subsidizes flood insurance. Major problems persist with the NFIP that affect its collection of premiums. First, grandfathering allows some households to pay low rates. Second, premiums are not high enough to cover costs and do not match risk (Burby 2001; Paskal 2011). Third, not enough people purchase insurance (Burby 2001). Fourth, repeat insurance for 30,000 “severe repetitive loss properties” drains NFIP resources (NRDC 2017; Moore and Scata 2017). Fifth, premiums should be high enough to discourage building in the floodplain, but this is not the current case (Burby 2001). Current proposals, like gradual reforms in the past, would not solve the problem. The 21st Century Flood Reform Act would put the NFIP further into debt by being too lenient toward grandfathered properties (Govtrack 2017). Michel-Kerjan and Kunreuther’s (2011) proposal for mandatory insurance in the floodplain with higher premiums and Kousky and Kunreuther’s (2009) proposal for mandatory long-term insurance in the floodplain would both be a large burden for homeowners in the floodplain. The former would still require government spending on vouchers. Katz’s (2017) proposal for private flood insurance would lean too heavily toward risk management and too far away from solidarity, hurting the poorest and most vulnerable. NRDC’s (2017) proposal to increase buyouts is a step in the right direction but would not address the NFIP’s broader problems. Flood Insurance in Millvale, PA Millvale is a borough in Allegheny County, Pennsylvania (PA). It has a mixture of businesses that mark its history as a working-class town and newer establishments that demonstrate the beginning of its gentrification. Girty’s Run flows through the town, including under some buildings, and into the Allegheny River. Flooding occurs when heavy rains on the hillsides above Millvale sends water coursing through Girty’s Run and through the town (pers. comm. 12/2018). The town’s website provides information on flood sirens and the NFIP (Millvale 2018a; Millvale 2018b). Millvale’s first FIRM was created in 1979 (FEMA 2018h). Any houses built after 1979 are “Post-FIRM buildings,” which means that they have height requirements for their lowest floors (FEMA 2016b). Millvale’s current flood map became effective on September 26, 2014 (FEMA 2018h).

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