“NO” on $16 Billion Bailout of National Flood Insurance Program

This week, the Senate will vote on the Additional Supplemental Appropriations for Disaster Relief Requirements Act of 2017 (H.R. 2266), a $36.5 billion disaster aid package intended to provide emergency relief funding for victims of hurricanes Harvey, Irma, Maria, and Nate, and for those fighting wildfires across California and other western states. The bill includes $18.67 billion for the Federal Emergency Management Agency’s (FEMA) Disaster Relief Fund (DFR) — $4.9 billion of which could be used to subsidize direct loans to Puerto Rico and are unlikely to be repaid — $576.5 million for federal wildfire suppression, and a $16 billion bailout of the National Flood Insurance Program’s (NFIP) nearly $30 billion debt. Heritage Action key voted against the bill in the House.

In the official disaster supplemental request to Congress, Office of Management and Budget (OMB) Director Mick Mulvaney writes that “the NFIP required 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.” OMB also argued the NFIP’s debt cancellation stems from “unforeseen, unanticipated events … it should be provided as an emergency requirement for budgetary purposes.” Heritage Action critiqued the request in a statement last week from vice president Dan Holler:

“The administration’s request to treat a $16 billion bailout for the failing federal flood insurance program as an emergency is irresponsible. There have been numerous efforts over the past decade to make the NFIP financially and structurally sound, but special interest pushback successfully blunted serious reforms. Put another way, the NFIP’s existing debt stems from poor design and congressional inaction, not an unforeseen crisis.

“If the administration and congressional leaders want to write off the NFIP’s debt it should be paid for and tied with the reforms similar to those recommended by Director Mulvaney. Anything short of that is simply a taxpayer bailout of a failed, big-government program and a victory for the special interests.”

The Heritage Foundation explained last month that emergency spending must meet five criteria: Necessary, sudden, urgent, unforeseen, and not permanent. The five-part test was first created by President George H.W. Bush’s OMB in 1991. In a report to Congress, as required by P.L. 102-55 (June 1991), OMB defined emergency spending as the following:

  1. Necessary expenditure–an essential or vital expenditure, not one that is merely useful or beneficial;
  2. Sudden–quickly coming into being, not building up over time;
  3. Urgent–pressing and compelling need requiring immediate action;
  4. Unforeseen–not predictable or seen beforehand as a coming need (an emergency that is part of an aggregate level of anticipated emergencies, particularly when normally estimated in advance, would not be “unforeseen”); and
  5. Not permanent–the need is temporary in nature.

The $16 billion bailout, which the legislation notes will be “treated as public debt of the United States,” fails the five-part test multiple times. The NFIP’s debt obviously built up over time and bailouts are by definition permanent in nature. Some lawmakers have raised concerns that additional bailouts are forthcoming because the bill waives the Stafford Act and allows “the Secretary of Homeland Security, in consultation with the Secretary of the Treasury” to cancel debts “in whole or in part” at their discretion.

Federal relief to victims of hurricanes is warranted, but Congress must act in a fiscally responsible manner by offsetting funding that is not truly “emergency” in nature. As Heritage Action made clear in September, “Any funds that fall outside the strict definition of ‘emergency spending’ should, such as the reported inclusion of small business loans, be offset.”

In the aftermath of Hurricane Katrina in 2005, the Republican Study Committee (RSC) unveiled “Operation Offset,” which was essentially a menu of spending cuts to offset the costs of disaster relief and rebuilding efforts. The Heritage Foundation applauded the effort, writing that The President and Congress are making huge federal commitments for relief and rebuilding, but these should not translate into an unprecedented expansion of the federal budget at a time when spending is already near an all-time high.”

Unfortunately, lawmakers will not be allowed to offer offsets or reforms because the bill will likely be voted on under a suspension of the rules, which requires a two-thirds vote. Regardless, The Heritage Foundation’s Blueprint for Balance: A Federal Budget for 2017 and Blueprint for Reform: A Comprehensive Policy Agenda offer dozens of offset options should lawmakers wish to revive Operation Offset. More spending is likely on the way, Interior-Environment Appropriations Subcommittee Chairman Mike Simpson (R-Idaho) made clear “This isn’t the last supplemental.”

***Heritage Action opposes the $16 Billion Bailout of National Flood Insurance Program and will include it as a key vote on our legislative scorecard.***