Federal Flood Insurance Is Now A Disaster Itself

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Garland Tucker III Author, The High Tide of American Conservatism
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Voters regularly ask themselves, “Why can’t Congress shrink the government?” While Democrats make no pretense of wanting to cut government, it has long been a Republican objective.

Yet, when the GOP gains control of Congress and the presidency, the goal remains elusive. Why?

An instructive example is the current debate over reauthorization of the National Flood Insurance Program, enacted in 1968. Passage of this bill was in response to escalating premiums on privately issued flood insurance. It was thought that by mandating coverage, the federal government could manage flood insurance more efficiently than the private sector.

After 50 years of experience, this program has run up a $25 billion deficit. Millions of American taxpayers now shoulder the burden of covering this $25 billion shortfall to protect a small percentage of the population, which continues to build and re-build in designated floodplains.

There is no question that private insurance companies are capable of assessing the risks of flooding in low-lying areas and setting premiums appropriately. That’s what insurance companies do every day.

But Congress has intervened in the private market in response to pressure from a small interest group. The predictable result is a major misallocation of resources. Clearly, premium rates have not come close to covering the risks. Still, Congress finds it far more palatable to shift the burden to the broad taxpayer base, rather than mandate appropriately higher rates for floodplain development.

For management of the program, Congress has turned to FEMA (Federal Emergency Management Agency). In typical fashion, Congress’ response to every natural disaster has been to pile ever more responsibilities — and funding — on this federal agency. FEMA’s annual budget is $13 billion, and charges of mismanagement and waste are rife. One law firm is estimated to have received over $29 million from FEMA to fight Hurricane Sandy claims.

If ever there was a program in need of reform — of cutting back government and reverting to the efficiencies of the private market — it is federal flood insurance. But here’s the problem: Much of the coverage is in Florida and Texas, which are strong red states.

As a Wall Street Journal editorial noted, “The GOP doesn’t want to invite rage in the fall from the Realtors who defend subsidized flood insurance as an inalienable human right.”

So, despite years of professed dedication to smaller government, the Republican leaders quickly cave into the vocal outrage of a small voter group and once again sock it to the average American taxpayer. House Majority Whip Steve Scalise of Louisiana has blocked even modest reforms. There is apparently no willingness among Republicans to take heat for sticking to their purported principles.

Because of 50 years of government-sponsored misallocation, there would be some short-term pain in reverting back to the free market. However, without such a move, the federal insurance is destined to continue to balloon and add to the federal debt.

Modern Republicans in search of backbone should look back to 1927. In the aftermath of the Great Mississippi River Flood of 1927, President Calvin Coolidge was under terrific pressure to intervene massively to provide relief. Instead of expediently yielding to this outcry, he respected basic American federalism.

The role of rescue and relief belonged to the states, Coolidge said, while the Constitution limited the federal government’s role. The New York Times praised Coolidge: “Fortunately, there are still some things that can be done without the wisdom of Congress and the all-fathering Federal Government.”  

This decision cost Coolidge politically, but he was right. There are many things the federal government cannot and should not do. It is never easy to say “No” to vocal pressure groups, especially when they have legitimate grievances. But if government is not the real answer to a particular problem, politicians should have the resolve to say, “No.”

If they cannot, then why have we elected them?

Garland S. Tucker III is the retired Chairman/CEO of Triangle Capital Corporation, the author of Conservative Heroes: Fourteen Leaders Who Changed America – Jefferson to Reagan, and a Senior Fellow at the John Locke Foundation.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller. Neither do they necessarily express the position of the John Locke Foundation.