Sure, David DeKok might be safe from any flood insurance rate spikes for now. Then again, maybe not. And almost certainly, if he tries to sell the place, the new owner could be charged $6,000 a year, the same rate that brought the imminent sale of a neighbor’s home to a screeching halt.
“That’s a tremendous hurdle to selling a house here,” said DeKok. “It’s gonna really hurt property values. It’s gonna make houses all but unsaleable.”
In 2012, Congress passed the Biggert-Waters Act, or BW12, to erase a $24 billion deficit in the National Flood Insurance Program by limiting federal subsidies on premiums and making property owners pay market rates. In Harrisburg, the impact could be huge, and it’s not just property owners along the Susquehanna River and Paxton Creek likely to feel the effect. If flood insurance rates dampen home values or force owners to walk away from their properties, the entire city may suffer another hit to its economic prospects, some say.
First, a primer. All flood insurance follows rules and rates established by the Federal Emergency Management Agency’s National Flood Insurance Program, according to James C. Enders, vice president, Enders Insurance Associates, based in Lower Paxton Township. Adopted in 1968, the NFIP extended rate subsidies that assured the continued viability—or foolhardy development, depending on your perspective—of flood-prone areas. Any property with a federally backed mortgage that’s sitting in a high-risk zone must have flood insurance.
Under BW12, rates for homes and businesses sitting in high-risk zones or frequently flooded will rise 25 percent a year until the subsidy is erased. When a property is sold, the new owner immediately pays the highest rate.
One significant change comes at policy renewal time. Under BW12, owners of homes built before implementation of a 1976 Flood Insurance Rate Map—known in the insurance industry as pre-FIRM buildings—must have certificates showing the property’s relation to flood elevations. That certificate, always required in post-FIRM buildings, is used to determine insurance rates and could send premiums skyrocketing on older buildings, said Enders.
The idea behind BW12 makes sense, Enders said. What doesn’t make sense are drastic changes after 45 years of business as usual.
“You and I as taxpayers are not going to continue to fund a program that is broken, and its intentions were all very good upon its inception—get communities involved, keep the rates down, and we know we’re going to foot the bill a little bit,” he said. “But I think we waited a little bit too long from 1968.”
DeKok now pays $1,700 a year for flood insurance on his Shipoke home. It’s pricey, he said, but the availability of affordable flood insurance convinced him and his wife to “buy here in this beautiful neighborhood.”
“They talk about bringing the price of policies up to market rates,” he said. “Where’s the market? There is no market. It’s somebody’s calculation of what the policy would be on open market.”
The issue isn’t new development in flood zones but protection of longstanding, taxpaying communities, said William J. Cluck, environmental energy and land use attorney, chairman of the Harrisburg Authority and a Shipoke resident.
“When we bought our house, this was a contract,” said Cluck.
In Harrisburg, Cluck sees the potential for higher taxes and utility bills citywide when property owners walk away from their mortgages.
“There’s real concern that the cost of the flood insurance program is going to be higher than their mortgage,” he said.
Many city property owners don’t realize their relation to flood zones and will experience the sticker shock of higher premiums, said Cluck.
“We allegedly have a recovery plan, but this is going to have a huge impact,” he said.
Though other states have taken steps to lessen the blow of rate hikes, Pennsylvania is not among them. Gov. Tom Corbett directed the Department of Community and Economic Development to form a task force of state agencies to assess “what resources we have available to homeowners” if the increases go through, said DCED spokesman Steve Kratz.
“The agencies met a few weeks ago and were taking the information back to their agencies and determining, from a proactive standpoint if this goes through, what they can provide in terms of support, hoping that the federal government does reverse this, but preparing in the event that they don’t,” Kratz said in early February.
Official inertia mystifies Cluck.
“As I understand it, Pennsylvania has the most miles of rivers and creeks in the country,” he said. “The economic impact on Pennsylvania has to be unbelievable. The fact that there’s nothing in our state government doing anything is just amazing to me.”
Deluge of Appeals
By contrast, Dauphin County commissioners are leaning on members of Congress and documenting the impact of drastic hikes on homeowners and businesses. One-fifth of Harrisburg real estate, comprising 2,500 properties, occupies the 100-year floodplain, they report. In Dauphin County, 12 percent of properties—13,205 total—are in 100-year or 500-year floodplains.
The county expects a deluge of homeowners appealing assessments on unsaleable homes with market values that have plunged, said Commissioner George Hartwick. Revenue drains would follow—tax losses of $3.3 million for municipalities, $20.8 million for schools and $9 million for libraries, according to county estimates. Services would be cut, or more revenue would have to be raised to keep services going, Hartwick said.
“When we see that kind of assessed loss in value and loss in revenue, who do you think is going to be making up that real estate tax loss?” Hartwick said. “It’s going to be everybody else not in the flood zone. The idea that this is somebody else’s problem couldn’t be further from the truth.”
In Congress, the issue has been snared like a dolphin in a tuna net—with some lawmakers from flood-prone areas scrambling for a moratorium, conservatives refusing to further subsidize an essentially bankrupt program, the White House backing NFIP reforms but probably disinclined to veto any delay bills.
For its part, FEMA last month announced a delay in some rate hikes until October 2015. However, the rate-hike delay apparently applies only to properties newly captured by redrawn flood-zone maps, not to those with existing policies, said Andrew Enders of Enders Insurance Associates.
“If you had been benefiting from subsidized rates, the stay or hold is not going to do anything for the phase-out of the subsidies,” he said.
Without compromise, RE/MAX realtor Ray Davis worries that the specter of high flood insurance costs is “bound to have an impact” on home sales in Harrisburg and elsewhere.
“It’s difficult enough when you have a property in the flood plain for buyers to overcome their concerns about living there,” he said.
As contributing citizens, Shipoke homeowners have “a right to continuation of reasonable subsidies,” no more unfair to other taxpayers than “for us to pay taxes to build a highway in Nevada that we may never drive on,” DeKok said.
Since 1888, DeKok’s house has withstood the floods of 1936, 1972 and 2011. The same goes for the people in it.
“We survive, we rebuild, and we keep a strong community going,” he said.