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Why Harvey could spell the end of U.S.'s flood insurance program

One of the first things visitors notice about Houston is the humidity – a stagnant, clingy cover that gets worse in the dog days of summer. It's a bit like being at sea, but never actually seeing the water.

That is, until a tropical storm such as Harvey hits.

The city was built in and around low-lying swamps and bayous, nestled inland from the Gulf of Mexico. Were it not for the oil business and air conditioning, it's a safe bet Houston wouldn't be the fourth-largest city in the United States.

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In pictures: Catastrophic flooding hits Texas

And federal flood insurance, of course.

The U.S. National Flood Insurance Program was created nearly 50 years ago because private insurers were balking at protecting homeowners from catastrophic losses in the country's most flood-prone areas, such as New Orleans, La. and Houston. But critics have long complained that the program bails out Americans, sometimes multiple times over, for living where they should not. Repeat claims account for up to a quarter of payouts.

Worse, subsidized flood insurance has encouraged rampant new and often high-end development – in bayous, barrier islands and other low-lying, but highly desirable, coastal areas. The program has become a federal giveaway to the moneyed and the powerful.

This destructive cycle of build, subsidize and rebuild makes flooding worse as vast natural drainage areas are covered over with concrete and structures. When the rains come, the water has nowhere to go but up.

Houston is feeling the direct consequences. Harvey marks the third 500-year flood to hit the city in the past three years.

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"Storms are natural events, but floods are usually man-made disasters," journalist Michael Grunwald argued this week in online publication Politico. "That's because flood damage depends not only on how much water is involved, but on how many people and structures are in its path and how prior human intervention had affected the path."

The federal flood-insurance scheme was in deep trouble long before Harvey.

But this monster storm, which has already dumped nearly 125 centimetres of rain on the Houston area, could blow it up. The program is running a nearly $25-billion (U.S.) deficit, swelled by claims from hurricanes Katrina in 2005 and Sandy in 2012. Because premiums are set artificially low, the government must keep borrowing more to cover payouts.

With sea levels rising and extreme weather events becoming more frequent because of global warming, these claims are coming fast and furious.

The U.S. Congress knows the situation is unsustainable. But as with the health-care issue, lawmakers have struggled mightily to do the right thing, repeatedly bowing to pressure from residents and politicians in parts of the country that rely on the subsidies and discounts. Ending the program would reportedly send coastal property values plunging by more than $1.2-trillion.

In 2012, Congress passed legislation to gradually phase out subsidies, making policyholders shoulder more risk. But after Sandy, lawmakers reversed course and softened the rate hikes, relieving premium holders of the full risk of insurance for up to two more decades.

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But the day of reckoning is approaching for federal flood insurance. Running out of cash, the program is set to lapse at the end of September – the end of the U.S. government's fiscal year.

A few months back, U.S. President Donald Trump floated what he thought was a brilliant solution. He suggested adding a surcharge to flood-insurance policies, with the proceeds going to help pay for his oft-promised wall along the U.S.-Mexico border. Killing two birds with one stone, as it were.

In the wake of Harvey's soggy destruction, Mr. Trump and Congress will find it much more difficult to punish the victims. Mr. Trump will no doubt find that getting flood victims to pay for his wall is as improbable as sticking Mexicans with the tab.

Indeed, if history is any guide, Congress will rush in with billions of dollars in special disaster relief in Harvey's wake. This, in turn, will provide flood victims with cash to rebuild, often in places that would be better off turned back into bayous.

And without reform, discounted federal flood insurance will make it all possible, once again.

Video: Split-screen video shows extent of Houston flooding
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About the Author
National Business Correspondent

Barrie McKenna is correspondent and columnist in The Globe and Mail's Ottawa bureau. From 1997 until 2010, he covered Washington from The Globe's bureau in the U.S. capital. During his U.S. posting, he traveled widely, filing stories from more than 30 states. Mr. McKenna has also been a frequent visitor to Japan and South Korea on reporting assignments. More

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