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[House Report 110-510]
[From the U.S. Government Publishing Office]

110th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     110-510

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 AMENDING THE NATIONAL FLOOD INSURANCE ACT OF 1968 TO PROVIDE FOR THE 
      PHASE-IN OF ACTUARIAL RATES FOR CERTAIN PRE-FIRM PROPERTIES

                                _______
                                

January 16, 2008.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

 Mr. Frank of Massachusetts, from the Committee on Financial Services, 
                        submitted the following

                              R E P O R T

                        [To accompany H.R. 3959]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Financial Services, to whom was referred the 
bill (H.R. 3959) to amend the National Flood Insurance Act of 
1968 to provide for the phase-in of actuarial rates for certain 
pre-FIRM properties, having considered the same, report 
favorably thereon with an amendment and recommend that the bill 
as amended do pass.

                                CONTENTS

                                                                   Page
Amendment........................................................     1
Purpose and Summary..............................................     2
Background and Need for Legislation..............................     2
Hearings.........................................................     3
Committee Consideration..........................................     3
Committee Votes..................................................     3
Committee Oversight Findings.....................................     3
Performance Goals and Objectives.................................     4
New Budget Authority, Entitlement Authority, and Tax Expenditures     4
Committee Cost Estimate..........................................     4
Congressional Budget Office Estimate.............................     4
Federal Mandates Statement.......................................     5
Advisory Committee Statement.....................................     5
Constitutional Authority Statement...............................     5
Applicability to Legislative Branch..............................     6
Earmark Identification...........................................     6
Section-by-Section Analysis of the Legislation...................     6
Changes in Existing Law Made by the Bill, as Reported............     6

                               Amendment

  The amendment is as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1. PHASE-IN OF ACTUARIAL RATES FOR CERTAIN PRE-FIRM PROPERTIES.

  (a) In General.--Section 1308(c) of the National Flood Insurance Act 
of 1968 (42 U.S.C. 4015(c)) is amended--
          (1) by redesignating paragraph (2) as paragraph (3); and
          (2) by inserting after paragraph (1) the following new 
        paragraph:
          ``(2) Recently purchased pre-firm single family properties 
        used as principal residences.--Any single family property that 
        is used as a principal residence that--
                  ``(A) has been constructed or substantially improved 
                and for which such construction or improvement was 
                started, as determined by the Director, before December 
                31, 1974, or before the effective date of the initial 
                rate map published by the Director under paragraph (2) 
                of section 1360 for the area in which such property is 
                located, whichever is later; and
                  ``(B) is purchased--
                          ``(i) after the date of enactment of this 
                        paragraph; and
                          ``(ii) for not less than $600,000.''.
  (b) Technical Amendments.--Section 1308(c) of the National Flood 
Insurance Act of 1968 (42 U.S.C. 4015(c)) is amended--
          (1) in the matter preceding paragraph (1), by striking ``the 
        limitations provided under paragraphs (1) and (2)'' and 
        inserting ``subsection (e)''; and
          (2) in paragraph (1), by striking ``, except'' and all that 
        follows through ``subsection (e)''.
  (c) Effective Date and Transition.--
          (1) Effective date.--The amendments made by subsections (a) 
        and (b) shall apply beginning on January 1, 2011, except as 
        provided in paragraph (2) of this subsection.
          (2) Transition for properties covered by flood insurance upon 
        effective date.--
                  (A) Increase of rates over time.--In the case of any 
                property described in paragraph (2) of section 1308(c) 
                of the National Flood Insurance Act of 1968, as amended 
                by subsection (a) of this section, that, as of the 
                effective date under paragraph (1) of this subsection, 
                is covered under a policy for flood insurance made 
                available under the national flood insurance program 
                for which the chargeable premium rates are less than 
                the applicable estimated risk premium rate under 
                section 1307(a)(1) for the area in which the property 
                is located, the Director of the Federal Emergency 
                Management Agency shall increase the chargeable premium 
                rates for such property over time to such applicable 
                estimated risk premium rate under section 1307(a)(1).
                  (B) Annual increase.--Such increase shall be made by 
                increasing the chargeable premium rates for the 
                property (after application of any increase in the 
                premium rates otherwise applicable to such property), 
                once during the 12-month period that begins upon the 
                effective date under paragraph (1) of this subsection, 
                and once every 12 months thereafter until such increase 
                is accomplished, by 15 percent (or such lesser amount 
                as may be necessary so that the chargeable rate does 
                not exceed such applicable estimated risk premium rate 
                or to comply with subparagraph (C)). Any increase in 
                chargeable premium rates for a property pursuant to 
                this paragraph shall not be considered for purposes of 
                the limitation under section 1308(e) of such Act.
                  (C) Full actuarial rates.--The provisions of 
                paragraph (2) of such section 1308(c) shall apply to 
                such a property upon the accomplishment of the increase 
                under this paragraph and thereafter.

                          Purpose and Summary

    H.R. 3959 amends the National Flood Insurance Act of 1968 
to reduce subsidies under the National Flood Insurance Program 
(``NFIP'') for single family primary residences that are sold 
for at least $600,000.

                  Background and Need for Legislation

    The NFIP, created by Congress in 1968, is administered by 
the Federal Emergency Management Agency (``FEMA''). The NFIP 
was designed to provide homeowners with affordable insurance 
protection against floods while alleviating taxpayers' 
responsibility for flood losses paid out in the form of post-
disaster relief. Ancillary to providing flood insurance under 
the NFIP, FEMA also identifies and maps flood prone areas 
eligible to participate in the program. The maps FEMA issues 
are known as Flood Insurance Rate Maps (``FIRMs'').
    Structures that were built before FIRMs were issued, 
generally before 1974, receive subsidized flood insurance 
rates. These structures are known as ``pre-FIRM'' structures. 
Pre-FIRM rates are determined through a federal rule-making 
process designed to encourage participation in the NFIP and 
not, by definition, to generate premium income sufficient to 
pay anticipated claims on pre-FIRM properties.
    In the past, Congress has appropriated funds to make-up the 
difference between pre-FIRM and actuarial rates, expecting 
that, over time, the percentage of pre-FIRM structures would 
decline and that most or all of the structures insured under 
the NFIP would be subject to actuarial rates. However, pre-FIRM 
structures continue to represent approximately 24 percent of 
structures insured under the NFIP and the NFIP has used its 
borrowing authority and its risk-based premium income to cover 
any shortfalls that result from the NFIP's two tier rate 
structure.
    H.R. 3959 removes subsidies, over time, for pre-FIRM, 
single family properties used as a principal residence that are 
purchased for at least $600,000. Beginning on January 1, 2011, 
NFIP premiums for such properties will be increased by 15 
percent annually until actuarial rates are reached.

                                Hearings

    No hearings were held on this legislation in the 110th 
Congress.

                        Committee Consideration

    The Committee on Financial Services met in open session on 
October 31, 2007, and ordered H.R. 3959, to amend the National 
Flood Insurance Act of 1968 to provide for the phase-in of 
actuarial rates for certain pre-FIRM properties, as amended, 
favorably reported to the House by a voice vote.

                            Committee Votes

    Clause 3(b) of rule XIII of the Rules of the House of 
Representatives requires the Committee to list the record votes 
on the motion to report legislation and amendments thereto. No 
record votes were taken with in conjunction with the 
consideration of this legislation. A motion by Mr. Frank to 
report the bill, as amended, to the House with a favorable 
recommendation was agreed to by a voice vote. During the 
consideration of the bill, the following amendment was 
considered:
    An amendment by Mr. Frank, No. 1, manager's amendment, was 
agreed to by a voice vote.

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee has held hearings and 
made findings that are reflected in this report.

                    Performance Goals and Objectives

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, the Committee establishes the 
following performance related goals and objectives for this 
legislation:
    H.R. 3959 removes a subsidy under the National Flood 
Insurance Program for primary residential properties built 
before flood maps were put into effect with the goal of 
strengthening the flood insurance program and making it more 
financially viable.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee adopts as its 
own the estimate of new budget authority, entitlement 
authority, or tax expenditures or revenues contained in the 
cost estimate prepared by the Director of the Congressional 
Budget Office pursuant to section 402 of the Congressional 
Budget Act of 1974.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                  Congressional Budget Office estimate

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:

                                                 November 20, 2007.
Hon. Barney Frank,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 3959, a bill to 
amend the National Flood Insurance Act of 1968 to provide for 
the phase-in of actuarial rates for certain pre-FIRM 
properties.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Daniel 
Hoople.
            Sincerely,
                                                   Peter R. Orszag.
    Enclosure.

H.R. 3959--To amend the National Flood Insurance Act of 1968 to provide 
        for the phase-in of actuarial rates for certain pre-FIRM 
        properties

    H.R. 3959 would direct the Federal Emergency Management 
Agency (FEMA) to increase premiums for certain policyholders 
that pay less than the actuarial cost (the amount estimated to 
cover expected claims in any given year) of their flood 
insurance policies. Any premium increase implemented as a 
result of the bill would yield additional receipts to the 
National Flood Insurance Program (NFIP); however, CBO estimates 
that such funds would be spent to cover the ongoing costs of 
the program, resulting in no significant net effect on direct 
spending. Enacting this legislation would not affect revenues.
    H.R. 3959 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would not affect the budgets of state, local, or tribal 
governments.
    H.R. 3959 would direct FEMA to increase flood insurance 
premiums for some single-family, primary residences that are 
purchased after the bill's enactment for at least $600,000. 
Under current law, FEMA charges some policyholders a discounted 
premium because their properties were built before the 
community's flood insurance rate map (FIRM) was completed, or 
before 1975, whichever is later. Those properties are 
collectively known as pre-FIRM properties. Under H.R. 3959, 
premium rates for this subset of pre-FIRM properties would be 
increased by a maximum of 15 percent a year until 2011, after 
which all properties in that subset would be charged actuarial 
rates.
    CBO expects that enacting H.R. 3959 would increase premium 
income to the NFIP over the 2008-2017 period. Based on data 
from the agency, we estimate that up to 150,000 properties 
might be charged a higher premium. Assuming that 1 percent of 
those properties would be sold in each year, we estimate that 
net income to the program would increase by $65 million over 
the 2008-2017 period. (Income could vary, depending on the 
number of properties sold during the next 10 years and the 
number of policyholders that would drop coverage in the face of 
higher rates.) CBO anticipates that additional premium receipts 
generated as a result of this legislation would be used to pay 
ongoing expenses of the NFIP, including future insurance claims 
that would not otherwise receive timely benefit payments. As a 
result, the bill's enactment would not have a significant net 
budgetary impact.
    The CBO staff contact for this estimate is Daniel Hoople. 
This estimate was approved by Theresa Gullo, Deputy Assistant 
Director for Budget Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional Authority of Congress to enact this legislation 
is provided by Article 1, section 8, clause 1 (relating to the 
general welfare of the United States) and clause 3 (relating to 
the power to regulate interstate commerce).

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

                         Earmark Identification

    H.R. 3959 does not contain any congressional earmarks, 
limited tax benefits, or limited tariff benefits as defined in 
clause 9 of rule XXI.

             Section-by-Section Analysis of the Legislation

Section 1. Phase-in of actuarial rate for certain pre-FIRM properties

    This section requires the removal of flood insurance 
subsidies for recently purchased pre-FIRM single family 
properties used as principal residences that have been 
purchased for at least $600,000. Beginning on January 1, 2011, 
NFIP premiums for such properties will be increased by 15 
percent annually until actuarial rates are reached.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, existing law in which no change 
is proposed is shown in roman):

        SECTION 1308 OF THE NATIONAL FLOOD INSURANCE ACT OF 196

               ESTABLISHMENT OF CHARGEABLE PREMIUM RATES

  Sec. 1308. (a) * * *

           *       *       *       *       *       *       *

  (c) Actuarial Rate Properties.--Subject only to [the 
limitations provided under paragraphs (1) and (2)] subsection 
(e), the chargeable rate shall not be less than the applicable 
estimated risk premium rate for such area (or subdivision 
thereof) under section 1307(a)(1) with respect to the following 
properties:
          (1) Post-firm properties.--Any property the 
        construction or substantial improvement of which the 
        Director determines has been started after December 31, 
        1974, or started after the effective date of the 
        initial rate map published by the Director under 
        paragraph (2) of section 1360 for the area in which 
        such property is located, whichever is later[, except 
        that the chargeable rate for properties under this 
        paragraph shall be subject to the limitation under 
        subsection (e)].
          (2) Recently purchased pre-firm single family 
        properties used as principal residences.--Any single 
        family property that is used as a principal residence 
        that--
                  (A) has been constructed or substantially 
                improved and for which such construction or 
                improvement was started, as determined by the 
                Director, before December 31, 1974, or before 
                the effective date of the initial rate map 
                published by the Director under paragraph (2) 
                of section 1360 for the area in which such 
                property is located, whichever is later; and
                  (B) is purchased--
                          (i) after the date of enactment of 
                        this paragraph; and
                          (ii) for not less than $600,000.
          [(2)] (3) Certain leased coastal and river 
        properties.--Any property leased from the Federal 
        Government (including residential and nonresidential 
        properties) that the Director determines is located on 
        the river-facing side of any dike, levee, or other 
        riverine flood control structure, or seaward of any 
        seawall or other coastal flood control structure.

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