The strength of the National Flood Insurance Program was put to the test after the devastating destruction from Hurricane Harvey, Irma and Maria, and unfortunately, it failed to hold up.

In a letter to the presidentOffice of Management and Budget Director Mick Mulvaney stated, “The recent hurricanes have inflicted projected losses of $16 billion. As a result, by the latter part of this month, the NFIP will have fully exhausted its financial resources (including its $30.4 billion in borrowing authority) and will be unable to pay claims.”

Mulvaney continued: “Put plainly, the NFIP is not designed to handle catastrophic losses like those caused by Harvey, Irma, and Maria. The NFIP is simply not fiscally sustainable in its present form. To be sure, the NFIP requires immediate financial relief to fulfill its obligations to its policyholders, but the program must also be reformed to place it on a sound financial footing and to enable the private market for flood insurance to expand”

Heading into hurricane season earlier this year, the NFIP already was not on stable footing. However, flood insurance, whether it’s private or the national flood insurance program, has long struggled to gain attention over the years.

But the devastating destruction of the recent hurricanes pushed the urgency for a solution to the program to the surface.

The problem is twofold though. First, the program currently doesn’t have enough money to function for the year, and two, it desperately needs to be reformed for the future.

In September, President Donald Trump signed a three-month extension to the NFIP, with the purpose of giving Congress more time to come up with a solution.

For the current financial issues facing the NFIP, Mulvaney said Congress needs to address how the NFIP will meet its current and anticipated outstanding obligations, while remaining viable for future needs.

The administration proposes cancelling $16 billion of the program's existing debt. Since the need for this funding arises from unforeseen, unanticipated events, Mulvaney noted that the debt cancellation should be provided as an emergency requirement for budgetary purposes.

For the future stability of the program, which is outlined in more details at the end of the letter, Mulvaney suggested that Congress should authorize the NFIP to establish a means-tested affordability program that allows low-income policyholders to maintain subsidized rates.

“This measure to keep the program affordable for those who need it should be paired with accelerated premium increases for policyholders who can afford to pay risk-based rates, pursuant to limits in current law,” it stated.

In addition, the administration proposes improving the program's management of properties that have sustained multiple losses.

The letter also addressed the private insurance market. Recently, despite a push in the House of Representatives to reform the private flood insurance market, the provision failed to make it through Senate for approval that same day.

Now, in this new letter, Mulvaney stated, “To allow the private market to expand, the administration proposes phasing out the issuance of NFIP policies for newly constructed homes and for commercial customers, strengthening FEMA's ability to share the risk of flood losses with private insurance companies, and removing barriers for customers who may want to switch to private carriers.”

The National Association of Home Builders, however, wasn’t on board with this suggestion, stating that they strongly oppose the reform proposal.

 "While NAHB supports reforms to the NFIP that will keep the program fiscally sound and preserve rate affordability, we strongly oppose the new proposal by OMB Director Mulvaney to phase out new NFIP policies for newly-constructed homes,” said Granger MacDonald, chairman of NAHB. “It would simply prevent home builders from being able to provide safe and affordable housing to consumers. By creating uncertainty in the housing market, this proposal would also harm local communities and impair economic growth.”

MacDonald explained that new homes are built to more stringent safety standards and usually fare much better than the older housing stock in flooding disasters.

And on top of this, he added that new construction policyholders pay full-risk rates, so they put more into the NFIP than they take out in claims.

“Why does OMB needlessly propose to penalize new construction? It would only hurt the fiscal soundness of the NFIP and fail to ease taxpayer burdens,” he stated. "NAHB will continue to work with Congress and the administration to achieve needed reforms to the NFIP that will ensure it remains efficient and effective in protecting property owners, creates more stability in the housing market, and improves the financial viability of the program."

Unfortunately, there are two more months of hurricane season left, leaving America and the budget at risk.   

“We must act expeditiously to ensure that communities have the assistance they need, when they need it,” Mulvaney concluded in the letter. “As always, I stand ready to work with you to achieve the objectives described in this letter.”