The 'Savings-and-Loan of the Seas' Flood Insurance Puts Taxpayers in Hurricane's Eye

WASHINGTON — Washington -- For the past week, the nation watched in horror as Florida counties and Louisiana parishes fell before the onslaught of Hurricane Andrew. Already called the worst natural disaster in U.S. history, Andrew's statistics shock by their size:

* Some 250,000 Floridians have lost their homes.


* The price tag for property damages in Florida is at least $15 billion.

* More than 1 1/2 million people fled New Orleans in a 48-hour period.


* Southern Louisiana was hit with 10 inches of rain in a day.

* Louisiana residents fleeing the southern part of their state caused a 3 1/2 -mile traffic jam on Highway 90.

The most shocking statistic of all, of course, is the loss of human lives to the storm: more than a doz- p en fatalities already identified with hundreds more injured.

In the next few weeks, the affected communities will clean up and try to take stock of their losses, watched in sympathy by the rest of the nation. But most Americans do not realize that the swath cut by the storm goes beyond the Gulf of Mexico and into the pockets of every taxpayer in the country. And they certainly do not realize that the enormous financial disaster wrought by Andrew would not have been possible without their tax dollars.

More than 50 federal programs fund coastal development and redevelopment, including money for highway and bridge building, beach renourishment and a host of other programs spanning nearly every federal agency. The Department of Interior concluded in 1987 that this stream of tax dollars is one of two major factors that helped make possible the explosion of seafront development during the past 40 years.

One of the grand-daddy federal subsidies is the National Flood Insurance Program. With $220 billion worth of policies, it is one of the largest domestic liabilities after the Social Security system. But because of its financial instability, the Flood Insurance Program may shortly become the "savings-and-loan of the seas" and the next federal program to be bailed out by the taxpayer.

Created in 1968, the program was intended to discourage unwise development by requiring flood-prone communities to plan new development away from the water's edge -- in return for flood insurance from the federal government. Private companies largely refused to insure what they viewed as overly risky development.

Instead, the bulk of the Program's 2.5 million policies now line the sea: 72 percent insure development along the Atlantic, Pacific and Gulf of Mexico, and another 10 percent insure development along the Great Lakes. But the states mostly recently in the news hold the lion's share of the policies. There are over 960,000 federal flood-insurance policies in Florida, nearly 257,000 in Louisiana and about 220,000 in Texas. All together, these three gulf states make up over half of the program's total policies. (In Maryland, nearly 34,000 policies are worth more than $2.8 billion.)


Florida, Louisiana and Texas are the most hurricane-prone states in America. One in three U.S. hurricanes strikes Florida, while among the most deadly hurricanes -- the Class 4 Andrews or Class 5 Camilles of 1969 -- two out of three roll over Florida or Texas, according to the National Hurricane Center.

As we saw this week, these savage storms carry a heavy financial price tag. The human toll may also be high; more than 17,000 Americans have been killed by hurricanes in the past hundred years -- 6,000 in the Great Galveston Hurricane of 1900. By comparison, the great San Francisco Earthquake of 1906 cost more than 600 deaths.

The National Hurricane Center has long warned that the nation stands on the brink of a deadly disaster. In the mid-1980s it reported that:

"In virtually every coastal city of any size from Texas to Maine . . . the United States is building toward a hurricane disaster. . . . The areas of the United States where 9 out of 10 [drowning deaths occur] from the storm surge during hurricanes are the very areas where the most dramatic increases in population have occurred in recent years."

The center's bleak forecast was updated at a conference this April when national experts predicted that the nation was beginning a new 25-year cycle of more frequent and ferocious hurricanes. If the center's analysis is correct -- and there is no reason to assume otherwise -- Andrew could be the warning shot in a long volley of hurricanes shooting toward America's coasts.

The federal taxpayer helps make possible the development that is a sitting duck for hurricanes, beach erosion and sea-level rise. The National Flood Insurance Program is a key member of the taxpayer-funded subsidies family. As the U.S. General Accounting Office acknowledged 10 years ago, federal flood insurance provides a "financial safety net" for shoreline development.


But it is a net woven by the taxpayer, who has been called upon to repair it throughout the program's checkered past. Between 1981 and 1985, Congress was forced to appropriate over a billion dollars to bail out the over-spent flood-insurance program.

The prospect of another taxpayer-funded bail-out has emerged in the wake of Hurricane Andrew. Before the deadly storm struck, the program's fund stood at $359 million. Although there is not yet a clear indication of the number of federal flood-insurance claims that will be filed in response to Andrew, recent hurricane history presents a disturbing guide. The 1989 Hurricane Hugo, another Class 4 storm that struck the Carolinas, Puerto Rico and the Virgin Islands, cost $356 million in federal flood-insurance claims. If Andrew's damage is no worse, the $359 million flood-insurance fund will be quickly swallowed up, and any additional claims from later hurricanes this season will be paid out of the taxpayer-funded Treasury.

Unwise shore development also affects the coastal environment. The shore is the most densely populated area of the country, with a national average of more than 1,177 residents per shoreline mile. In fact, more than 50 percent of the U.S. population now lives in coastal counties, which are the fastest-growing areas of the country.

Population density brings pollution and threatens wildlife habitat. Shellfish beds, fisheries and wetlands suffer. More than 5 trillion gallons of sewage wastes are discharged into coastal waters each year. On more than 2,000 occasions in 1991, ocean and bay beaches were closed or advisories were issued against swimming because of high levels of bacteria, mostly from raw human sewage.

The financial instability of the flood-insurance program, the exposure of millions of people to deadly storms and hurricanes, and the degradation of the coastal environment prompted Congressional investigation in the late 1980s. What became clear was that the program had become a huge and pivotal supporter of shoreline construction, which it had been supposed to limit. In 1988, the Federal Emergency Management Agency, which runs the flood-insurance program, admitted that a bad storm year would cost $3.5-4 billion in flood-insurance claims, about 10 times the amount of money it had on hand.

A bill to reform the program passed the House of Representatives by 388 to 18 in May 1991. The work of Representatives Tom Carper, D-Del., Ben Erdreich, D-Ala., and Doug Bereuter, R-Neb., the bill recognized that it is not good federal policy to require the U.S. taxpayer to support hazard-area development.


To help protect the taxpayer, the bill would prohibit federally backed flood insurance for new development in hazardous, eroding portions of the nation's shores. Development could proceed, but without the financial support of taxpaying Americans. In August 1991, a counterpart bill was introduced in the Senate by John Kerry, D-Mass., which picked up the support of Sen. Paul Sarbanes and other lawmakers.

The bill soon ran into a powerful wall. The National Association of Homebuilders and the National Association of Realtors mounted an intense campaign against the legislation. The reason is simple: Without the federal taxpayer to underwrite flood-, hurricane- and erosion-prone development, private construction on the coasts becomes financially risky and much more expensive.

Senator Kerry responded with compromise legislation in June that would still protect the taxpayer, while providing more flexibility to the owners of current shore development. The bill has earned the endorsement of more than 100 conservation groups and the state associations that manage coastal development.

While Florida and Louisiana residents pick through the rubble of their homes, the nation must turn its attention to helping those who were harmed by Hurricane Andrew. But it also must consider the wisdom of continuing to pump billions of tax dollars into development that is at risk from the Andrews that the National Hurricane Center predicts are sure to come.

Even if Andrew doesn't sap the entire federal flood-insurance fund, the hurricanes after Andrew will. The bill before the Senate would take the first, badly needed steps to take us out of the business of supporting hazard-area development. For the sake of the Federal Treasury, public safety and the coastal environment, it is time to reform the National Flood Insurance Program.

Beth Millemann is executive director of the Coast Alliance, an activist group, and the author of "Two If By Sea: Fighting the Attack on America's Coasts."