There is growing concern among municipalities that property values, along with historic preservation and infill projects, could be negatively impacted by the changes Congress made this year to keep its federal flood insurance program afloat.
In the late 1960s, the federal government began offering flood insurance to property
owners through the National Flood Insurance Program. The program, currently with 5.6 million policies in place, was created to provide flood insurance to places not covered by private insurance because of elevated risks.
While the program's main goal is to keep new construction dry during floods, it also made policies available at discounted rates for structures built in flood hazard zones before the community joined the NFIP and an initial flood map was adopted. This year is different for each community. The program provided subsidized rates for these high-risk areas to avoid pricing the owners out of their properties.
The program began struggling financially following the catastrophic losses from Hurricanes Katrina and Sandy. In 2012, Congress passed the Biggert-Waters Flood Insurance Reform Act in an attempt to restore solvency to the program. The act made changes to all major components of the program, including flood insurance, flood hazard mapping, grants, and floodplain management. It also increased rates to ensure that flood insurance rates more accurately reflected the real risk of flooding.
After scores of property owners complained of skyrocketing rates that threatened the loss of their homes, Congress enacted additional reforms. On March 21, President Obama signed into law the Homeowner Flood Insurance Affordability Act of 2014. This law repealed and modified certain provisions of Biggert-Waters.
Lisa Jones is the owner of Carolina Flood Solutions LLC, a private environmental consulting company, and an expert on Biggert-Waters. Jones said the 2014 act makes a number of changes designed to ease the immediate impact of the rate increases and phase them in over several years. Still, rates will increase 18 percent a year for primary homes located in a flood zone and 25 percent for second homes and businesses until they hit a level consistent with their actual flood risk.
The changes have some municipal leaders concerned about the impact on historic preservation, infill projects and property values.
The City of Georgetown lost eight buildings that housed 12 residential units and 19 retail and restaurant properties in a September 2013 fire. The loss of combined tax revenue to the city, county and school district was $43,205 in property taxes, $150,000 in annual sales taxes and approximately $38,000 in local hospitality taxes generated by the restaurants, according to City Administrator Chris Carter.
The most critical aspect of rebuilding the fire ravaged portion of the downtown is the FEMA requirement for rebuilding, Carter said.
"Because the buildings were a total loss, they no longer have their historical designation and will be considered new construction when they are rebuilt. This will require the new buildings to meet all building codes for new construction, including FEMA's requirements for flood mitigation," he said.
Property owners must either elevate the first floor to the base flood elevation in Georgetown, which is approximately 5" feet above the current sidewalk elevation, or use a FEMA-approved method referred to as dry flood proofing. A dry flood proofed structure requires taking extra measures during reconstruction to ensure the structure is watertight. This extra cost to flood proof or elevate buildings above the existing sidewalk elevation is a conundrum for both property owners and the city as efforts get underway to rebuild, Carter said.
"Either of these two options adds cost, and the property owners are faced with a replacement cost to rebuild that exceeds the current market value for rents," Carter said. "The flood insurance program requirements and premium costs are going to weigh heavily in the owner's decision to rebuild."
The City of Charleston, with its historic district of some 4,800 structures on a peninsula largely in a flood plain, also expects to see an impact from changes to the flood program.
Property owners with pre-firm (built before 1974 in Charleston) properties need to pay close attention for changes that could occur when the NFIP is reauthorized in the future, advised Laura Cabiness, director of the City of Charleston's Department of Public Service. Under Biggert-Waters, subsidies for pre-firm properties were to be eliminated over time. Some property owners were seeing rates increase by tens of thousands of dollars per year, especially for properties located below the base flood elevation.
"This would mean that some historic properties might be uninsurable as a practical matter," Cabiness said. "I think it would also add pressure to reduce flood risk and unaffordable insurance premiums by elevating historic properties, something that preservationists would resist."
Before Biggert-Waters was repealed, the city became aware of property sales that fell through after the purchaser received exorbitant quotes for flood insurance, Cabiness said. Huge insurance costs would impact the value of property, which would also impact the valuation for tax purposes, she concluded.
Lisa Jones will provide updates on the latest policy changes regarding the federal flood insurance program during a session at the Association's Annual Meeting in Charleston on Friday, July 11.