How the National Flood Insurance Program Wastes Taxpayer Dollars

An expensive tutorial on the perils of government interaction.


In 1967, Pete Seeger composed a protest song that said: "We're waist deep in the Big Muddy, and the big fool says to push on." It was a poke at President Lyndon Johnson, in an allegory about Vietnam. That war is long past. But Johnson led us into another, more literal Big Muddy that we have yet to escape.

Hurricane season is underway in North America, with the worst storms likely between August and October. Americans who live inland may think they have nothing to worry about, because their homes will not be drowned in salt water. But they are at high risk anyway.

That's because they will have to shoulder a large share of the cost of helping homeowners who live in the path of tropical storms. The National Flood Insurance Program, created in 1968 under LBJ on the theory that the private insurance market couldn't handle flood damage, presumed that Washington could. Like many of his Great Society initiatives, it has turned out to be an expensive tutorial on the perils of government intervention.

The program is set to expire at the end of July, but Congress will undoubtedly renew it sooner or later. Correcting its perverse incentives, however, may be a bridge too far.

Hurricane Harvey inundated a house in Kingwood, Texas last year—the 22nd time it has flooded since 1979. You might think that after the first or second disaster, those in charge of the insurance program would have offered to pay for the owner to rebuild—somewhere else.

But it was allowed to remain in harm's way. As of 2015, the government had paid $2.5 million in claims—"at last eight times what the house is worth," according to the Houston Chronicle.

A house outside of Baton Rouge, La., assessed at $56,000, has soaked up 40 floods and over $428,000 in insurance payouts. One in North Wildwood, New Jersey has been rebuilt 32 times.

Nationally, some 30,000 buildings classified as "severe repetitive loss properties" have been covered despite having been swamped an average of five times each. Homes in this category make up about one percent of the buildings covered by the flood insurance program—but 30 percent of the claims.

Their premiums don't cover the expected losses. But as National Resources Defense Council analyst Rob Moore told The Washington Post, "No congressman ever got unelected by providing cheap flood insurance."

That's one reason the program is $25 billion in debt. By underpricing coverage, the government encourages people to build in places that are doomed to go underwater. It also leaves other taxpayers high and dry, and not in a good way.

One explanation for the pattern is that the NFIP rules allow rebuilding only if the damage is less than half the value of the home. Otherwise, the owners must move or elevate their homes.

But local officials find it unpleasant to deliver such unpleasant news to flood victims, so they "lowball damage estimates, putting people and homes back in vulnerable places." The Chronicle found that in Galveston, after Hurricane Ike in 2008, dozens of properties had assessed damage of less than 50 percent—despite getting between eight and 15 feet of water.

If private insurers were providing coverage, you can be sure they would limit repeat claims in places vulnerable to costly storms. It would be less expensive if those whose homes keep flooding took buyouts so the land could be given over to frogs and sawgrass.

The federal program allows owners to choose that option. But it can take years for local governments to get the needed money from the Federal Emergency Management Agency. And there is no guarantee that owners will get buyouts in the end. The delay pushes them to swallow hard, fix the damage, and stay put.

The root of the problem is a familiar one: the people responsible for these decisions are not spending their own money. They find it easier to indulge the relative handful of flood victims than to attend to the interests of millions of taxpayers in general.

In a private program, an insurer that didn't enforce its rules with care and resolve would soon find itself out of business. Local, state, and federal agencies almost invariably survive no matter how poorly they manage their budgets.

Barring good luck, some coastal communities will soon be coping with torrential rains, high winds, and storm surges. But thanks to the flood insurance program, we're already in over our heads.

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  1. Chapman, keep up the Libertarian pieces like this and it might make up for the other crap.

  2. It’s a mistake to believe this govt intervention only benefits a handful of flood victims. From what I’ve read millions of homeowners would be uninsurable and thus unable to qualify for a mortgage without this program. It’s why you will find Republicans in Congress fighting for this welfare. All that talk about fiscal responsibility goes out the window when your job in Congress or your house is on the line. Much like “spending other people’s money” ‘fiscal responsibility” is useful for Republican voters only when they’re talking about “cutting other people’s spending” ideally those other people live in Chicago.

    1. At the very least they could change the program to where it doesn’t keep covering houses that repeatedly flood.

      1. They repeatedly state that intention (to make that change) but somehow almost never get around to doing it! Also, in a lot of places, they FORBID you as a private builder from building your private house on a raised foundation (as in, trucking in a bunch of dirt), because that displaces floodwaters onto neighbor’s house! Your living room is REQUIRED to serve as the floodplains for your neighbor’s house! Somehow, big businesses get an exception to this rule…

        (Usually, houses on stilts are allowed, if the homeowner’s association doesn’t think that they are ugly, even though the volume of your pillars ALSO displaces water onto your neighbor’s house).

        Building giant drainage ditches would help a LOT! But they cost a lot of money… The money spent here isn’t “sexy” to many voters, so it doesn’t get spent. Lots of OTHER spending is more “sexy”… Name your fave… Building giant walls to keep the illegal humans out, more Government Almighty control of what women do with THEIR wombs, etc.

        1. When your house floods does that make your living room the domain of the EPA?


            My god man. Don’t give them any ideas!

            Jesus. REASON! We need a delete button, stat! 😉

            1. You’re not thinking of the great horny toad and it’s natural breeding habitat on your flooded couch. We need the EPA to protect the horniest of horny toads.

        2. ” the volume of your pillars ALSO displaces water onto your neighbor’s house”

          But surely the volume of the pillars is less than the volume of the walls (studs, sheathing, siding, drywall, insulation), furniture, appliances, etc. that would be at ground level?

          Seems more than reasonable to build the house on stilts such that the ground level could still be enclosed as a garage or left open as a car port.

      2. Welfare doesn’t become acceptable because it ceases to be class based.

        Which is why flood insurance keeps paying, pretty much regardless if it is a two bedroom shack on the Mississippi, or a ten room mansion on the gulf coast – either way the program exists because it’s easier to throw other people’s money around than deal with the disruption and displacement of real changes.

      3. The money should be contingent on moving to a non flood plane area, and only available once. No flood insurance of any type from the government if the person chooses to stay there. Let them pay to rebuild on their own dime.

    2. From what I’ve read millions of homeowners would be uninsurable and thus unable to qualify for a mortgage without this program.

      Hmm then maybe these homeowners picked the wrong spot for their houses?

      1. You try telling them that. Show up to the Shrimp boat captain meeting where “dey all voted for Trump” and tell them to move and find another job. They’ll accuse you of being a Chinese communist.

      2. Some did pick the wrong spot. But mostly, it just means private insurers are lazy. They don’t want the effort of assessing, client-by-client, elevations and flood risk, so they just pull out of buffer zones along the coast?leaving many properties that wouldn’t flood in a tsunami without resort to anything but federal flood insurance. That then gets priced?a quarter mile from the water, and 100 feet above sea level, in New England?as if it were on the beach at the Gulf Coast. It’s all forced transfer payments to make the politics and budgets work out?for approving insane risks in a minority of locations that anyone can see are crazy.

        On the other hand, it’s also doing some long term good. My waterfront town is, house-by-house, going up on pilings where the risks warrant doing it.

      3. I have flood insurance on my beach house, and yes, it’s a mildly risky place to build. That’s why I put it up on stilts, and put breakaway construction around the lower level. I poured a slab and use it like a garage, for extra space, and for the well pump, water heater, washer and dryer.
        Still, it’s no big deal to me if the federal program isn’t renewed. I built the place thirty years ago, and the worst flooding so far has been under a foot. I don’t really expect that Jim Walter home to last long enough to get swept away.

    3. The problem is that people aren’t paying the full cost of living where they live. Yes, cutting the program would cause pain for a bunch of people. So maybe just pulling the plug wouldn’t be politically feasible or kind. Perhaps start by not insuring any new construction, or not insuring structures over a certain value. Then the rest of the program could be phased out or reduced greatly in scope over time.

    4. re: “millions of homeowners would be uninsurable”

      False. However, it would be true to say “uninsurable at the current prices”. When insurance companies are allowed to set reasonable market prices, literally any property is insurable.

      (And before someone objects about evil, money-gouging insurance companies, remember that if you really think they are evil and money-gouging, it’s not all that hard to set up your own mutual (that is, policyholder-owned) insurance carrier. If you think they’re ripping customers off, do better and drive them out of business.)

  3. We the taxpayers pay for the fancy beach-houses of the rich! For their beach-houses to be rebuilt again and again! Yet they NEVER invite us taxpayers to come and spend a fun week at the beach in their / our beach house!

    1. It’s a sweet deal. The interior design is always up to date in the beach houses because they get gutted and redone at our expense every few years! What a sweet deal for the beach house owners.

  4. If only people had to be responsible for their decisions.

    “When the people find that they can vote themselves money, that will herald the end of the republic.”
    -Benjamin Franklin

    1. I think I read that’s one of those fake founders’ quotes the right wing likes so much. Got any citation to show where the original is?

      Yup. Looked it up. Fake.

      1. You have the ability to prove what someone in 1790 did or didn’t say their entire lives? Holy shit that’s impressive!

        I was trying to find the Roman quote about voting into the public coffers. But hey, I realize some people have to be told what words matter instead of using critical thinking to consider the weight or accuracy of them.

        1. Look. If the quote didn’t come from someone that everyone knows about, then the content doesn’t matter. It’s all about who, not what. You don’t judge ideas on their own merit, you judge the ideas based upon who said them. So if someone really famous says something really stupid, then it must be brilliant. And if a nobody says something brilliant, then it must be stupid.
          You just don’t understand anything, do you.

          1. So add that to the list of top ten stupid human traits. So far, we have two just on this sub-thread:

            1. People deny responsibility for their own actions.
            2. People believe shit based on who said it.
            3. (next?)

        2. I think it’s still good to know whether quotes attributed to historical figures are actually documented as such.

          1. But the flip side is not attributing a quote to the person who said it? I was trying to give credit to whom I thought said it. The quote isn’t too far off from his pragmatism.

        3. If it’s fake, it’s fake, don’t try do cover for it. Credit it to anonymous or something.

    2. How ’bout this one?

      “When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it.”
      ? Fr?d?ric Bastiat

      1. It’s always a good time for Bastiat.

      2. I like the above quote, because it catches not only the classic “poor welfare mom” with 5 kids from 5 different fathers, voting for welfare checks for herself, but it ALSO catches rich fat cats who vote for licensing & regulations & such, that “fence out” their competitors!

        (Well, change “men” above to “persons”, but you get the idea… There is often genius in keeping things general, not too specific).

        1. Until the feminists got sand in their collective crotches, “men” was understood to mean “people,” just as the proper noun Man was understood to mean the human race.

          Captain Kirk vs Captain Picard and all that.

        2. Welcome to America. We speak English here.
          In the English language, there is no neuter; only masculine and feminine. The Masculine stands for the neuter.
          So men, not person.
          The polite here do not distort the language for simple political gain.

  5. Hurricane Harvey inundated a house in Kingwood, Texas last year?the 22nd time it has flooded since 1979. You might think that after the first or second disaster, those in charge of the insurance program would have offered to pay for the owner to rebuild?somewhere else.

    But it was allowed to remain in harm’s way. As of 2015, the government had paid $2.5 million in claims?”at last eight times what the house is worth,” according to the Houston Chronicle.

    It had never before occurred to me to use arson in self-defense…

    1. But local officials find it unpleasant to deliver such unpleasant news to flood victims, so they “lowball damage estimates, putting people and homes back in vulnerable places.” The Chronicle found that in Galveston, after Hurricane Ike in 2008, dozens of properties had assessed damage of less than 50 percent?despite getting between eight and 15 feet of water.

      So, limit the pool of considered estimators to “people who own actual construction companies” or at least general contractors, require each property to have two estimates done, and then require the contractor with the lowest estimate to do the repairs for the price in the estimate.

      I bet lowballing would stop instantly.

      1. Or just payout the estimate and make local officials make up the difference.

  6. But it was allowed to remain in harm’s way. As of 2015, the government had paid $2.5 million in claims?”at last eight times what the house is worth,” according to the Houston Chronicle.

    Huh, I find this perplexing. I live in an inland state, and I know several people who were denied payments by FEMA several years back after a major flood because they claimed they only pay out once for this. They also claimed that it was once per property, not owner, and at least one family didn’t receive any insurance funds because a previous owner had done so decades earlier.

    1. I’ve heard the same thing in regards to cheap houses in river flood plains. Some government agency comes in and buys the houses and destroys them. I’m sure it has to do with the fact that these relatively poor people living near rivers aren’t as well connected as the rich beach-front property owners.

      1. indeed, none of the people I am thinking of were wealthy or well-connected.

    2. But did these poor “river rats” pay for FEMA insurance, or not? Where I live, you’ve got to BUY the FEMA insurance to collect off of it!

      If the “river rats” paid for FEMA insurance, for FEMA being so incompetent as to NOT tell them that they weren’t eligible to collect off of the insurance… Then that’s downright criminally incompetent of FEMA!!!

      But then, yes, this IS Government Almighty that we’re discussing here…

    3. Uh, cuz FEMA and NFIP are different?

      1. OK, yes, I was confusing or conflating the 2… Kivlor apparently was, too…

        So NFIP then sure looks like it is incompetent, if this is really going on! Either one of the 2 below…

        ‘1) NFIP takes payments from customers and then AFTER the disaster, tells them that they’re not getting what they paid for!

        ‘2) They are paying insurance payouts to people who didn’t buy the insurance!

        Either one is criminal… You or I as a private business did this, we’d be in jailed and / or fined out the wazzoo….

      2. Sorry, used the wrong acronym. FEMA was involved, because it was declared a national disaster. But we are in fact discussing the NFIP, and they did indeed pay their premiums because their banks had required it.

        1. More importantly, I think you’re being pedantic, as I consider this a little more. FEMA handles and administers the NFIP. The payouts go through them, and their office.

  7. “severe repetitive loss properties”

    “Nice little house ya got there ….”

  8. I’m not going to argue for the Flood program, but you need to look at what’s covered under flood. Elicot City, MD got flooded and isn’t near the coast or from a hurricane. Even seperate from that, as soon as rain hits the ground its no longer rain damage it’s flood damage. So any areas, including those far from the coast, can be subject to “flood damage”.

    The issues are the repetitive locations and the premium pricing.

  9. To help everyone calm down, we could celebrate a momentary libertarian event in the history of coastal flooding. In 1982 congress enacted the Coastal Barriers Resource Act (CBRA).

    Sold in part as a way to prevent development and preserve natural coastlines, the CBRA denies almost all federal aid to private development along the Gulf and east coasts, and includes the majority of the coastline. (In Texas alone, the CBRA red-lines at least 80% of the coast).

    People, and local agencies, can still develop their land, but cannot get coverage from NFIP nor compensation from FEMA.

    Let coastal freedom ring!

    1. Great! Now cover California.
      Might break up quite a few socialist enclaves.

  10. Cool story, now extrapolate this out to health insurance.

  11. END IT!

    And by the way, why does any insurance pay for rebuilding homes in California hills that BURN EVERY YEAR?

    END IT!

  12. We could build a great modern city in Orange County, NY for a fraction of what it costs us to keep retrofitting New York City a couple of hours drive downstream. There’s no need for so many people to live close to the port.

  13. It’s worse than you think. Midwesterners living along major rivers were virtually begged by government officials to buy flood insurance. Many refused to spend the money. When the flood hit – and it hit big – Congress passed a bill paying off those who DID NOT buy the insurance, the same as if they had. So the people prudent enough to pay the money up front were made fools of, and the rest of us paid the bill. This is a classic flaw in democracy – politicians will ALWAYS buy votes with your money. And you a-holes will always line up to take the money when it happens to you.

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