Harvey Could Bankrupt The Federal Flood-Insurance Program

Tyler Durden's picture

Hurricane Harvey may solve the auto industry’s inventory problem. But right now, it's about to create a giant headache for the federal government.

Based on the latest estimates from Irvine, California-based CoreLogic, insured flood losses for homes in the affected areas of Texas and Louisiana could total between $6.5 billion to $9.5 billion. Since private insurers typically don’t provide personal flood insurance, all but $500 million of that will fall to the Federal Emergency Management Agency’s National Flood Insurance Program, or NFIP.

According to the Street, if insured damages reach the high end of this range, it would totally deplete the $7.5 billion of cash and available credit available to the 49-year-old government program, which provides about 98% of residential flood insurance. The program is already about $25 billion in debt to the US Treasury Department and would need Congressional authorization for additional funding. To be sure, final totals could be much, much higher given the severity of the the “1-in-1000-year” flood.

The potential funding shortfall could create problems if Congress doesn’t act quickly this month to shore up the financially-troubled flood-insurance program. As we’ve reported, Congress already has a full agenda in September – a month where lawmakers must pass a funding bill to keep the government open, and another to raise the debt limit and stave off a technical default on US debt. Initially, President Trump said he would force a government shutdown if Congress didn’t approve funding for his border wall in its next budget. However, it appears that he has backed away from this, as the Washington Post reported today that the administration has quietly notified Congress that the $1.6 billion in wall funding would not need to be included in the September continuing resolution.

Furthermore, Congress must explicitly pass legislation to keep the NFIP intact. Without it, the entire program will lapse.

To be sure, there are some signs that Republicans are taking steps to ensure that emergency disaster-relief funding is approved as quickly as possible. According to a report in the Wall Street Journal, some Republican lawmakers are raising the possibility that funding for the cleanup effort could be attached to the debt-ceiling bill, giving both measures a strong chance of passing. But it didn’t say if funding for the flood-insurance program would be included.

Thanks, in part, to the hurricane, and the perceived political consequences of failing to aid the disaster victims (though Texas has proven to be a reliably red state), Goldman has cut its odds of a government shutdown to 15%.

* * *

To be sure, this problem could’ve been avoided if the federal government didn’t involve itself in the complicated process of responding to natural disasters. Instead, as Ryan McMaken of the Mises Institute suggests, the Federal government should just hand Texas back the income-tax revenue it’s collected this year, and give the state carte blanche to organize and finance the recovery, INCLUDING the reconstruction of flooded and otherwise damaged homes.

“Of course, we'll be told that federal disaster relief programs are all about "sharing" and "cooperation" and "kindness." In reality, it's all just about forcing one group of people to hand over money to another group of people. There is no doubt that Texas and Houston now face significant challenges in rebuilding after the flood. But, when we demand that other regions and states pay for the rebuilding of Texas, we're acting as if those other states and communities don't have problems of their own.


Needs related to poverty, infrastructure, and education in, say, Michigan did not magically disappear because Texas experienced a flood. The only reason it now seems right to take money from people in Michigan, and hand it over to Houstonians, is because Houston's problems are in the headlines, and Michigans mundane daily problems are not. The central planners have decided that Houstonians deserve Michigan's money. But the rationale for this decision is purely political, and thus arbitrary.”

After all, the state has a larger GDP than Canada, Brazil and Italy.

That would at least spare the 30,000 people living in emergency shelters the anxiety of wondering whether President Donald Trump and Congress will manage to put their political squabbling aside for long enough to authorize the funding.

Especially because Hurricane Irma, currently a category 3 storm, could make landfall in the Gulf of Mexico, or Florida. If it's the former, southwest Texas could receive its second pummeling in two weeks.

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FreeShitter's picture

No problem's tyler.....Old yeller and the gang can easily print that $$$ up 

political_proxy's picture

It's nothing a shitload of fiat can't fix. Oh, wait, that's why the debt is so insainly massive.

Xscream's picture

its ok we do it for the children sarc/

El Oregonian's picture

And to think that this is the beginning of the downhill slide into 3rd world status...

JRobby's picture

"Will" bankrupt the National Flood Insurance Fund


Better start spraying the aluminum dust into the atmosphere full blast.

Paul Kersey's picture

Would it amaze anyone if we started seeing these thousand year floods every few years?

lil dirtball's picture

Irma - NYC - 9/11/17 (but first it will take out the refineries along the eastern seaboard)

Déjà view's picture

Batchelor...NUMBER 41...

Rinse & repeat...'Taxplayers'...PRE-EXISTING coverage...great for GDP...

Can you imagine living in a property that has flooded 10 times? How about 20 times? It’s hard to fathom enduring that kind of situation, yet owners of 2,109 properties across the United States experience just that. Not only has each of these properties flooded more than 10 times, but the National Flood Insurance Program has paid to rebuild them after each flood. One home in Batchelor, Louisiana flooded 40 times and received a total of $428,379 in flood insurance payments. 

These properties—and more than 30,000 others that have flooded multiple times—illustrate the current problems of the National Flood Insurance Program.


Déjà view's picture

Tejas should be forced to implement higher building code standards and strict zoning according to flood zones for 'Feral' Funds...

Other states subsidize weak Tejas building codes...keep them boxes cheap...Perhaps 'Loan' Star State can lower one of the highest property tax rates in U.S. to offset housing price increase.

Texas doesn’t have the worst score in a recent ranking of state building code systems but it’s pretty close to the bottom, according to a national organization committed to improving the ability of properties throughout the nation to withstand catastrophic weather events.


Stormtrooper's picture


After all, it ain't real money.

847328_3527's picture

With the next $4 trillion in bailouts, gold should hit $2,000 again (or higher).

krispkritter's picture

We'll just write a check.  "...a check?!  Well hell I thought you needed money!  I'll pay that sucker off right now!" J. Foxworthy

Muddy1's picture

no it doesn't matter.

My question is how can Harvey bankrupt the flood insurance program when such a small percentage of the affected people didn't have insurance.  No insurance no payout, it's that simple.

NotApplicable's picture

Because $9.5B is only perhaps 5% of the total damage.

FoggyWorld's picture

The bulk of the money going to those areas is for things such as infrastructure.  None of it goes to individual homeowners.  They can file a claim against NFIP insurance if they paid in, but that is a very separate organization though it is housed under FEMA.

It seems to me that because 80% of those Houston homeowners were not in NFIP, change will have to be made to help the uninsured.  Most likely there will be low interest loans but they aren't the best and NFIP doesn't really begin to cover rebuilding or fixing serious damage.

The only plus I saw from Sandy was that it forced towns that took money to accept FEMA's much tougher and more appropriate building codes.  Our town and many others had very week codes because builders wanted things that way and donated to politicians who accommodated them.  That has changed and permanently so that new houses will have to adhere to much more stringent codes.

Xscream's picture

and they will. and much mch more

post turtle saver's picture

we heard the same dire warnings after Katrina... didn't happen and won't happen this time, either...

HRClinton's picture

I told you in my "5 Minute Argument", to... "Do no HAARP!"


rbianco3's picture

I recall spewing comments on ZH about buying gold under $1,300 in part because of Texas (insurance gaps). Ego +1

I did not know about Irma at the time though... interesting/concerning times. We'll survive them and do just fine.

45North1's picture

Hopefully Irma just brings wind, but tidal surges are common.....



omniplastic's picture

As a homeowner who has been hit by a hurricane and flood, I already know the insurance companies' (including fema) solution to this problem.  Just don't pay the claims.  

rejected's picture

Many I know after Ivan never got paid and I still see some blue roofs. It's been 12 years.

Trucker Glock's picture

FEMA will pay out million$ in fraudulent relocation funds to scammers and spend billion$ to fund Houston's buyout of thousands of flooded homes.  Citizens will lose their asses on destroyed personal property not covered by flood insurance.  They can deduct losses on their taxes ONCE.  If their loss is greater than 2017 taxable income, too bad for them.  They can't deduct losses over multiple years, like "investors" gambling in markets can.  Floods suck.  Better to be wiped out by a tornado or fire.

jerry_theking_lawler's picture

This fact....and everyone should know this before purchasing property the 'can' flood. My family was flooded out in the '80s. Lost everything. Got some cleaning supplies from the RC but no other freebies. Family got a low interest loan from SBA to rebuild. It has worked out OK for my family but it did set my parents back financially about 10 years.

Anyways, lesson learned? Do not live in flood area. If I am buying property, I take the FEMA map and would only buy about 10' above the 100 year map level. Never again will I flood. All of my property now is impossible to flood, barring intervention of the Noah type.

The best way to teach people a lesson is to give them a hard lesson. Make them feel the pain of loss for their decisions (to live in a flood area) and they will learn not to build there.....

QEpp's picture

Good, I hope it does.  End of the program.  Lots of private insurers can fill the gap.  People should not be subsidizing others to live in risky areas.

rejected's picture

People should not be subsidizing others ???

Like Obama Care?

FoggyWorld's picture

There really are two separate programs.  NFIP covers a house up to a rather low amount for those primary residence owners who have been paying in.

The big money really comes straight from FEMA that none of us pay directly into and it covers all sorts of things from wildfires, to tornados, to bad winter snow storms and to floods.  Any sort of natural weather caused incident of size automatically it seems gets big money.   So the thought that it just pertains to flooding really isn't true.  It's the Federal Emergency Management Agency and that covers a whole lot of turf.


krispkritter's picture

So goes the .Gov hamster wheel. Start slamming the Ctrl-P! They can print their way out of anything mother nature can throw at us! (until they can't anymore)

Ms No's picture

Is this why the rich in many areas often live on elevated land?  The views are better but it is also safer property.  People should be warned upon purchase of property what their risk is but they wont because developers that build on stupid land want to push their product.  Buying a house is the most important investment that most people make.  Make it wisely.

FoggyWorld's picture

The rich also often live along coastlines and after a storm, FEMA does come in and rezone areas and puts in very tough and expensive new building codes. The risk though is there but lessened by today's building methods because there is a limit on how big a claim a house can put in.  It was $250K for Sandy and I believe in Houston it's down to $200K but that only applies to people who were paying into NFIP and it only covers primary residences.

So the wealthy have known going in that if they built a multi million dollar mansion on a waterfront property, there was financial risk involved from the get go.

The money FEMA distributes isn't to individuals other than up front temporary housing and food.  Those funds at least after Sandy were for infrastructure repair and upgrading and apparently a huge chunk of it was used to build new Section 8 housing for the poor in the towns affected.  That raised the amounts of money sent by around a third and not sure it was money well spent because most towns weren't and still aren't prepared for influxes of new people who will need services we often haven't had ourselves.

The major weakness I saw in Sandy was it was money sent but never audited.  It went to the Governor who dribbeled it out to towns affected (and a few others), then to the Counties,  and finally to the towns themselves.   At every stop it was politicians who touched the money and who determined how it would be spent. Where I live the people in that chain of disbursement are famous for using vendors who are friends and family.  FEMA needs to get very serious about hiring accountants because all sorts of things went on without we the people being involved.  And competitive bidding for expensive projects really ought to be required.




idontcare's picture

"often" but not "always"...

The Manses along the east coast of FL from Dade County up through the Georgia border aren't elevated enough to avoid surges from Cat 1's let alone 5's.   If Matthew had actually made landfall on Palm Beach last year, Mar A Lago would still be closed for renovations.

dogismycopilot's picture

Free money for everyone.

Cash Is King's picture

We're so fkn broke the NFIP owes Treasury 25 large? I don't think there's a word strong enough to adequately label our fiscal position! WOW! Just wow!

Pure Evil's picture
Harvey Could Bankrupt The Federal Flood-Insurance Program


Just in time for Cat 5 Hurricane Irma to strike the East coast.

idontcare's picture

Latest spaghetti models center straight up through DC...... ooops!

krispkritter's picture

 "straight up through DC...... ooops!"  What do you mean 'ooops?'  Hell fuckin' yes! I'll pay money for that. Hand me over the Haarp controls and you'll hear 'Hold my beer and watch this!"

idontcare's picture

Can I have the controls when you're done with DC.... I want to steer it up to the NYC metro area

HRH Feant2's picture

Fine. Let it die. People shouldn't live in these areas. Fucking idiots.

rejected's picture

Using your logic,,, the entire west coast,  Montana and Wyoming, the plains States, the mid-west and Tennessee Valley and 2/3 of the east Coast should be off limits. The entire east coast if ice storms and blizzards were included.

Juggernaut x2's picture

BS- coastal cities like Houston and New Orleans were built on coastal swamps that always bore the brunt of hurricanes - coastal swamps and floodplains  are Mother Nature's way of saying "DON'T BUILD HERE YOU FUCKING IDIOTS"

NoBillsOfCredit's picture

So just where do you Live? And how did you get there? Besides that if the government wasn't involved in all of this we wouldn't be worrying about it.

BTW, you don't know shit about Houston.


az_patriot's picture

You win the prize for the dumbest post of the day.  Congratulations!

Juggernaut x2's picture

because building cities at sea level on the hurricane-prone warm waters of the Gulf of Mexico is so fucking brilliant

bardot63's picture

What about tonado prone Kansas, Nebraska, Missouri, Iowa, Oklahoma?  What about earthquake prone California, Alaska?  What about volcano prone Wyoming, Montana, Washington?  What about liberal dipshit prone New England?  What about Mexican wetback and drug alley prone New Mexico, Arizona, California?  How about commie dictator prone South America?  How about socialist alley Canada?  Maybe muzzie prone Europe? 

idontcare's picture

... So this means Dow 30K & gold to 5K?



rejected's picture

You poor bastards that think your flood insurance was high before,,, Standby!

Synoia's picture

As we’ve reported, Congress already has a full agenda in September – a month where lawmakers must pass a funding bill to keep the government open, and another to raise the debt limit and stave off a technical default on US debt.


Oh No!!! Perhaps they could work some unpaid overtime! I suspect they are Exempt from the Fair labor Practices Act.

Jolt's picture

We have TRILLIONS with which to play war games around the world, engaging in endless corporate-interest wars...

And we have billions and billions with which to arm police departments with military-grade weaponry...

And we're quibbling about a few billion to help lowly Americans who got flooded out of their homes?

Here's an idea: the Pentagon should get 90% less of what its getting from us, and we lowly Americans should get 90% MORE.