Los Angeles Times

Proposed rules threaten fabric of river life in Port Deposit

Pushing waterlogged belongings out the front door of her duplex, Suzy Cunningham trod over a buckle in the floorboards.

"Our porch went all to hell," she lamented as she cleaned up last month after Tropical Storm Lee. "Their ain't a floor in Port Deposit that's even."

Nor was it the first time the waters of the Susquehanna River had rushed through this Cecil County town that locals call "Port." Most of the houses built in the lowlands between the river and North Main Street show the scars of decades of flooding.

These homes have been refurbished over and over, aided in the last 40 years by inexpensive flood insurance backed by the federal government.

But now Congress is poised to change the money-losing insurance program to make premiums commensurate with the risk that homeowners take on when they live in a flood plain.

Lawmakers are aiming the revisions at coastal resort towns that can afford to protect against flooding by lifting homes or building dikes and levees.

But the legislation, which has already passed the House, would also ensnare poorer river settlements such as Port Deposit, where higher premiums could push longtime residents out of their homes.

"The people who are going to be the most affected don't have the ability to adjust," said Gerald E. Galloway Jr., a professor of engineering and public policy at the University of Maryland. "On the rivers, many of the communities don't have the same incomes [as do the coastal resorts]."

Private insurers have had little interest in providing flood coverage because they have been unable to find a way to make it profitable. Congress created the National Flood Insurance Program in 1968 to reduce emergency expenses following natural disasters.

Over the last three decades, the program has paid out more than $240 million to Maryland homeowners.

To qualify for the money, communities must steer future development away from flood-prone areas. Port Deposit has enacted rules requiring that new buildings be flood-resistant.

As a result, the living areas in the town's three newest developments, each built within feet of the river bank, were unaffected last month when Exelon opened the floodgates of the Conowingo Dam.

But "the older homes, there's not a whole lot we can do about them," said Laura Luongo, chairwoman of the town's Planning and Zoning Commission.

Historic properties such as the Cunninghams', which was built in 1900, were given a pass by Congress. Because such homes were built before the federal flood plains were officially defined, their premiums were slashed, so homeowners paid well below the real cost of insurance.

"When they started, they said, 'We're going to subsidize people who are already in the flood plain,'" Galloway said. "The idea being that over time these people would … get too wet and move out."

But over 20 percent of the homes covered by the program still qualify for the subsidized rates, according to the Congressional Budget Office. The owners of these properties typically pay 40 percent to 45 percent of the value for their insurance.

Suzy Cunningham's husband, Harvey, whose forebears have lived in Port Deposit for about 150 years, acquired the eastern half of the duplex from his family. Suzy and her adult daughter purchased the western half about nine years ago.

"Everything's ruined on the first floor," Harvey reported after he and Suzy returned home from the Lee evacuation. "The walls need to be torn out completely up to 4 feet."

Harvey renewed the flood insurance policy on his half of the structure this year for $1,081. Suzy, who has paid off her mortgage, did not buy a policy on her half because she couldn't afford the premium, she says, even though their 110-year-old home qualifies for a subsidy.

His half will be repaired. Her half will have to wait.

Suzy despaired that the wall-to-wall carpet, only a few years old, had to be torn out.

"We're going to fix it up somehow, but we don't know how," she said. "A little bit at a time."

For lawmakers focused on budget deficits, the flood insurance program makes an easy political target: It owes the U.S. Treasury about $18 billion — a result of not having enough cash on hand to pay off the catastrophic damage of Hurricane Katrina.

Lawmakers have funded the program the last few years through a series of temporary extensions, and have allowed it to lapse several times.

Having delayed changes for years, Congress now is prepared to pass a bill that would rate houses such as the Cunninghams' at their real insurance value. The legislation would raise premiums over time until they reflect the full risk.

The idea is supported by lawmakers of both parties. All eight House members from Maryland voted to approve the bill in July; a similar measures awaits a vote in the full Senate.

Stuart Mathewson, chairman of American Academy of Actuaries' flood insurance subcommittee, said Congress has finally come to the conclusion reached by private insurers at least 80 years ago.

"This will help" keep the federal program afloat, Mathewson said. "It's not perfect, but it will help."

The draft Senate version of the legislation, considered by committee in early September, would raise premiums on commercial and vacation properties. The House version would also increase payments on homes sold to new owners.

Both versions would raise premiums on properties that have been flooded and repaired several times with program funds.

A home that has been awarded at least four claims greater than $5,000 each or two claims that together exceed its market value of the home would be tagged as a "severe repetitive loss property."

The effect would be to phase out subsidies for homes built before flood safeguards were common. Such properties would lose their eligibility as they are sold or repeatedly flooded.

Austin Perez, a senior policy analyst for the National Association of Realtors, says the legislation is better than the alternative: an unsustainable program.

"If someone is making the conscious decision to buy an 1880 property in a high flood zone … and they're going to pay 40 percent of the actuarial value on their insurance … I don't know how you support that and see a federal flood insurance program in the long run," Perez said.

The Congressional Budget Office concluded that the House bill would, from the start, subject 355,000 policies to an increase. These policyholders pay an average $1,174 for a yearly policy; they would pay more than twice that after the subsidies are eliminated.

At least one of the triggers would likely apply to many of the homes in Port Deposit. The town of 650 has a median household income of $45,000.

Of 265 occupied housing units in the town, 160 have flood insurance policies. The policyholders paid about $60,000 last year for more than $23 million in coverage.

The Congressional Budget Office projects that some people would drop their policies as their premiums increased. That could change the face of Port Deposit. About 60 percent of the town's homes were built before 1960.

"Obviously you've got one governmental interest … in preserving historic homes," Perez said. "You've got another interest, which is continuing a flood insurance program, meaning that people might have to pay a little more to keep that program going. They're separate interests, and they both have value."

Rep. C.A. Dutch Ruppersberger says some homeowners — even those who have lived in their homes for decades — will finally have to own up to the fact that their homes are in flood plains. Some, he said, will finally pay the real price of their insurance.

"The main issue is that these are people's homes," said Ruppersberger, a Democrat whose district includes Havre de Grace, across the Susquehanna from Port Deposit. "A lot of them are seniors. You want to give them the opportunity to keep living in their homes, but sometimes that's just not feasible."

But some analysts believe they have a solution to make affordable policies viable: A program of vouchers, similar to food stamps, that would continue subsidies based on income qualifications.

"It's very similar to a subsidy, except that with a subsidy, you don't tell people that they are in a high-risk area," said Erwann Michel-Kerjan, managing director of the Risk Management and Decision Processes Center at the Wharton School at the University of Pennsylvania. "There is a signal of the exposure at the same time there's an affordability aspect."

A voucher program would eliminate subsidies for the owners of oceanfront homes who can afford to protect against flood losses, but would allow poorer homeowners in communities such as Port Deposit to buy into the insurance program at a reasonable cost, at least until the homes are sold to new owners.

Buyers of older homes, who are misled by artificially low premiums, would be made fully aware of flood risks because the rate would reflect a policy's actual cost, said Michel-Kerjan.

Rep. Andy Harris, whose district includes Port Deposit, said he would consider corrective measures if premiums become unaffordable.

"Port Deposit really is a special circumstance," said Harris, a Republican. "They don't have problems unless those floodgates are open.

"As we see what the premiums look like, then we could take action for particular circumstances, like Port Deposit, where it's not just the weather, it's actually a man-made decision."

Change could come too late to affect the Cunninghams. They say they have had enough of the Susquehanna's periodic incursions into their home.

Harvey remembers Tropical Storm Agnes in 1972 and a severe river-melt flooding in 1996. He never expected to see the water come into the living room a third time.

"I really thought Agnes would be it," Harvey said. "If we have another one next year, I'm outta here."



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