Nothing unites political actors in Washington like legislation designed to wash away the smallest smattering of reform.
In 2011, the House took near-unanimous action to reform a program most Americans had never heard of: the National Flood Insurance Program (NFIP). In theory, a flood insurance system charging homeowners a fair premium for the risk associated with residing in flood-prone areas makes perfect sense. However, as is often the case with government-run “insurance” schemes, NFIP’s design was fundamentally flawed.
The program offered insurance at rates far lower than the fair risk premiums for homes in dangerous areas and provided massive subsidies to beneficiaries with older homes and vacation homes, even if the homeowners turned out to be frequent NFIP claimants. Unsurprisingly, this incentive structure encouraged homeownership in high-risk areas, provided inadequate revenue to cover the associated risk, and necessitated massive borrowing from Treasury to cover the gap between premiums and payouts.
The 2011 House legislation co-sponsored by Rep. Judy Biggert (R-IL) and Rep. Maxine Waters (D-CA) sought to address NFIP’s insolvency with restrictions on NFIP subsidies and other reforms to bring premiums closer to full-risk rates. As Rep. Biggert explained at the time, such reform “eliminates a barrier to the development of a private flood insurance market and puts us on a path towards a responsible, long-term plan that eliminates taxpayer risk.” Even Rep. Chris van Hollen (D-MD), the number two Democrat in the House, joined the 406-22 vote in favor of the proposal, arguing that the bill “strikes the proper balance between providing Americans with the flood insurance protection they need at a price taxpayers can afford.”
NFIP’s problems were so obvious that even interest groups accustomed to supporting federally subsidized homeownership in high-risk areas expressed support for the reforms. When many of the important changes in Biggert-Waters were included in an otherwise disastrous transportation bill in 2012, the National Association of Realtors praised the provisions as “necessary to save a program that is $18 billion debt and secure passage of the 5-year extension to avoid further disruption of real estate markets across the U.S.”
Now, as these commonsense reforms begin to take hold, the very interest groups that two years ago accepted the necessity of reform have changed their minds. The Times-Picayune recently reported that corporate pressure “from banking and real estate interests, has been enough to overcome strong lobbying to preserve Biggert-Waters.” Even though the program is now $24 billion in debt, many members of Congress appear eager to delay the reforms they endorsed in 2011. Rep. Steven Palazzo (R-MS), for example, who took to the House floor in May 2012 to argue that the House’s reforms had “been taken hostage by the Senate,” has since joined the “flood caucus” which is driving the current debate.
Conservatives have some allies in Congress who recognize the danger of rolling back the reforms that are locked into current law, but their efforts to protect those changes are being sabotaged by Republican leadership.
Speaking at Heritage Action’s Conservative Policy Summit, Rep. Jeb Hensarling (R-TX), the Chairman of the House Financial Services Committee, pledged, “I will not be part of any program, policy, act that hastens the bankruptcy of a program that is already underwater.” Unfortunately, though, CQ recently reported that Hensarling has been “sidelined” despite Speaker John Boehner (R-OH) having “repeatedly promised to let committee chairmen guide policy in the House.” This is not the first time that Hensarling has been overruled by leadership for promoting conservative reforms; his PATH Act, which would protect taxpayers by dissolving Fannie Mae and Freddie Mac, has remained stalled due to leadership’s reluctance to take on the real estate and financial industries that are comfortable with a major government role in the housing market.
Thanks to conservative opposition, House action has been delayed until at least next week. But if and when House members vote to unravel the reforms passed almost unanimously in 2012, they’ll once again demonstrate what conservatives have long understood: in Washington, deference to special interests is a bipartisan sport.