Harvey Could Bankrupt The Federal Flood-Insurance Program

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%.

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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.