Oceans & Coastal Resources:
A Briefing Book
Congressional Research Service Report 97-588 ENR
Redistributed as a service of the National Library for the Environment

Coastal Development
and the National Flood Insurance Program

Prepared by David Whiteman

Analyst in Natural Resources Policy
Environment and Natural Resources Policy Division


Issue Definition
Background and Analysis
Mitigation Funding
Coastal Erosion
Status of the Issue
Continuing Concerns
Sources and References for Further Information

Issue Definition

Coastal development is influenced in part by incentives, both actual and perceived, resulting from federal government actions. While it is the stated objective of the federal flood insurance program to guide development away from high risk flood areas, critics maintain that the government has yet to fully consider development pressure in the most highly eroding coastal areas. In September 1994, the Congress completed long anticipated reforms of the National Flood Insurance Program (NIP) but bowing to substantial opposition from representatives of long established coastal communities, chose not to curtail federally provided flood insurance in coastal erosion zones, as early versions of the legislation had specified. Instead, the National Flood Insurance Reform Act of 1994 requires the Federal Emergency Management Agency (FEMA) to "study" and map erosion hazards along the Nation's coasts and riverbanks. This study may also evaluate whether the NFIP is helping to control coastal development as intended, and if not, may call for further reforms. A key concern continues to be the increasing federal (and non-federal) expenditures for disaster assistance to coastal communities.

Background and Analysis

The National Flood Insurance Program 26 was enacted in 1968 (title XIII of P.L. 90-448) to limit the growth of flood control and disaster relief expenditures through a reasonably priced federal flood insurance program. The NFIP makes federally guaranteed flood insurance available in communities that adopt and enforce floodplain management measures (zoning laws) to reduce future flood losses. The program combines mitigation and insurance to protect property owners from flood damage and more than 18,000 communities currently participate in the NFIP. The NFIP is administered by the Federal Insurance Administration (FIA), a component of the Federal Emergency Management Agency (FEMA).

After more than 25 years of existence and much modification by the Congress, the program had been perceived by many as flawed. This perception arose primarily because of

The midwestern floods during the summer of 1993 exposed and publicized program weaknesses and provided the impetus in the 103rd Congress to reform the NFIP. On September 23, 1994, President Clinton signed into law the Community Development and Regulatory Improvement Act of 1994 (P.L. 103-325), realizing many long awaited reforms to the NFIP. Title V of the act (the National Flood Insurance Reform Act of 1994) makes substantial changes in the NFIP. In the past several years, FEMA has been promulgating the necessary rules to implement changes. One of the most important reforms is designed to increase participation in the NFIP. The 1973 Flood Disaster Protection Act made the purchase of flood insurance mandatory on properties with federally guaranteed mortgage loans in identified special flood hazard areas. Enforcement of the mandatory purchase requirement was supposed to be accomplished by the federally guaranteed mortgage lending institutions. However, many of these lenders failed to require such coverage as a condition of making mortgage loans, and many property owners who had purchased coverage allowed their policies to lapse. Once mortgage loans had been made, the lending institutions did not compel the property owners to renew and maintain flood insurance. The new law

Another important change lengthens the waiting period from 5 to 30 days for coverage to become effective after purchase. This prevents people from buying coverage as a flood threat builds, such as an approaching storm or cresting river, and then allowing it to lapse when the immediate danger passes. Flood insurance purchased when real estate changes ownership would not require a waiting period.

Mitigation Funding

Section 1362 of the NFIP, which had provided minimal funds for relocation, was repealed by P.L. 103-325. In its place is a new National Flood Mitigation Fund, into which will be transferred $20 million annually from the National Flood Insurance Fund after an initial period of three years.

The mitigation fund is designed to provide grants, on a cost-sharing basis, to states and communities for planning and implementing mitigation projects such as relocation, elevation, acquisition, floodproofing, beach nourishment and technical assistance from states to local governments. Construction of levees or seawalls are specifically excluded from such funding unless structural construction of this type can be shown to be cost-effective.

Coastal Erosion

The enacted NFIP revisions did not include elimination of federally provided flood insurance in 30 year and 60 year erosion zones for which early versions of the legislation had called. If the controversial erosion provisions had not been removed from the proposed legislation, opposition from coastal state Representatives effectively might have blocked the entire flood program reform package. Instead of erosion restrictions, a study provision was substituted that directs FEMA to survey communities subject to coastal erosion and provide an economic impact analysis that would assess the costs and benefits of mapping, regulating, and insuring them. The study will also determine the effect of such regulation and insurance on property values, tax revenues, employment, economic development, and the need for future federal and state disaster assistance. Five million dollars was authorized for mapping erosion hazards in a representative sample of at-risk communities throughout the U.S., including Coastal, Great Lakes and riverine areas.

The study is being conducted in three phases. Phase one, begun in FY1995 and continued in FY1996, requires FEMA to map coastal erosion hazard areas for 26 Coastal and Great Lakes counties. FEMA has contracted with state Coastal Zone Management (CZM) agencies to assist in this effort. Phase two requires FEMA to conduct an inventory of structures located in the mapped erosion hazard area. Phase three requires FEMA to conduct, through a private independent entity an economic impact analysis of mapping erosion hazard areas. FEMA expects to initiate phase two and three of the study in FY1997. These phases are also to be conducted in close cooperation with state CZM agencies.

The desirability of coastal living has produced an accelerating migration to the coasts with construction of primary and vacation homes, and attendant commercial and recreational development. Although federal programs such as the NFIP have imposed increasingly stringent and more expensive requirements for new construction in coastal areas, coastal population and development continue to increase. Even in the ecologically important undeveloped coastal barrier areas protected through the Coastal Barriers Resources Act (CBRA) of 1982, some development continues, although the incentive of property coverage from the NFIP and other federal government subsidies are unavailable. CBRA relies on NFIP provided disincentives to discourage building in vulnerable coastal areas covered by CBRA. This is accomplished by prohibiting the sale of flood insurance in designated CBRA areas. While the law does not expressly prohibit property owners from building in CBRA areas, the financial risk of such building is transferred from federal taxpayers directly to those who choose to live and/or invest in these areas.

Development continues in coastal areas for a variety of reasons. Not all eligible communities have chosen to participate in the NFIP; yet, while these communities may not receive NFIP coverage, they may still receive conventional loans from federally insured or regulated private lending institutions. Also, developers may sometimes find non-federal support for flood insurance as well as infrastructure such as roads, bridges, and sewage treatment. Some critics believe that the federal government has not established strong enough disincentives/prohibitions and that additional legislation such as national minimum erosion setback requirements is needed.

Continued coastal development has resulted in increasing damage and higher federal, as well as non-federal, relief costs in the aftermath of recurring hurricanes and storms.

Sources and References for Further Information

National Academy of Sciences, Committee on Coastal Erosion Zone Management. Managing Coastal Erosion through the National Flood Insurance Program. Washington, DC: National Academy Press, 1989.

U.S. Library of Congress, Congressional Research Service. National Flood Insurance Program Issues. CRS Report for Congress IB93077 (archived). [by Malcolm Simmons.] Washington, DC.

U.S. Congress, House. A Descriptive Analysis of Federal Relief Insurance, and Loss Reduction Programs for Natural Hazards. Report prepared by the Congressional Research Service for the Committee on Banking, Finance, and Urban Affairs, Subcommittee on Policy Research and Insurance. 102nd Cong., 2nd Sess. Oct.15, 1992. Washington, DC: U.S. Govt. Print. Off., 1993. Committee Print 102-15.

------------. Hearing on Flood Disaster Protection Act of 1973. 101st Cong., 2nd Sess. Mar. 8, 1990. Washington, DC: U.S. Govt. Print. Off., 1990.271 p. Serial No.101-89.

----------. Hearing on Existing Federal Mitigation Provisions. 101st Cong., 2nd Sess. June 27, 1990. Washington, DC: U.S. Govt. Print. Off., 1990. 184 p. Serial No.101-143.

------------. Hearing on the Coastal Barrier Improvement Act of 1990.101st Cong., 2nd Sess. Sept.11, 1990. Washington, DC: U.S. Govt. Print. Off., 1990. 189 p. Serial No.101-167.

U.S. Congress, House Committee on Merchant Marine and Fisheries, Subcommittees on Fisheries and Wildlife Conservation and the Environment; and on Oceanography and the Great Lakes. Coastal Barrier Improvement Act of 1989 (HR. 2840). Hearing, 101st Cong., 1st Sess. Aug. 2, 1989. Washington, DC: U.S. Govt. Print. Off., 1989. 115 p. Serial No.101-35.

U.S. Congress, Senate Committee on Banking, Housing, and Urban Affairs, Subcommittee on Housing and Urban Affairs. The Flood Insurance, Mitigation, and Erosion Management Act of 1991 (S. 1650). Hearing, 102nd Cong., 1st Sess. Sept.25, 1991. Washington, DC: U.S. Govt. Print. Off., 1992. S.Hrg. 102-430.

U.S. Congress, Senate Committee on Environment and Public Works, Subcommittee on Environmental Protection. Coastal Barrier Resource System. Hearing, 101st Cong., 1st Sess. Sept.29, 1989. Washington, DC: U.S. Govt. Print. Off., 1989. 143 p. S.Hrg. 101-363.

U.S. General Accounting Office. Flood Insurance: Statistics on the National Flood Insurance Program. GAO/RCED-88-155F5. Washington, DC: April 1988.

-----------. Flood Insurance: Information on the Mandatory Purchase Requirement. GAOIT-RCED-92-86. Washington, DC: July 27, 1992.


26 42 U.S.C. ยง4001 et seq., 1968.

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