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After Sandy, federal flood insurance drawing renewed scrutiny

Published: Thursday, Jan. 24 2013 5:30 p.m. MST

Richard Thomas walks through the flood waters in front of his home after assisting neighbors as Hurricane Sandy bears down on the East Coast, Monday, Oct. 29, 2012, in Fenwick Island, Del.

Alex Brandon, AP

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"When I started here, all there was was swamp," said Herbert's father to his understandably reluctant son. "All the kings said I was daft to build a castle in a swamp, but I built it all the same, just to show 'em. It sank into the swamp. So, I built a second one. That sank into the swamp. So I built a third one. That burned down, fell over, then sank into the swamp. But the fourth one stayed up. An' that's what you're gonna get, lad — the strongest castle in these islands."

Monty Python fans will recognize the unfortunate father from The Holy Grail, but residents along parts of the hurricane-ridden East or Gulf coasts might feel as if they were looking into a mirror.

Environmentalists and fiscal hawks have long been in agreement that excessive development of vulnerable waterfonts makes little sense economically. After Hurricane Sandy savaged heavily-populated beachfronts on the East Coast, critics of federal flood insurance are questioning why lifestyle costs are being borne by taxpayers.

"The reason so many Americans make their homes in storm and flood zones is partly because we simply like living along the water," wrote Bryan Walsh at Time.com. "But the other part is that government-subsidized flood insurance essentially eliminates the financial risk. The question now, after Sandy, is whether we’ll keep making the same circular mistake, paying billions to put people back in harm’s way, or whether we’ll instead say, 'Build if you want, but the risk is all yours.'"

The opposition to continued taxpayer-subsidized rebuilding has spawned an odd-fellows coalition, called Americans for Smart Natural Catastrophe Policy, which includes the Sierra Club and a handful of major taxpayer and conservative business groups.

"People who live in harm's way should be encouraged to protect themselves and their communities from natural disasters," the group's website read. "Incentives, such as tax credits, should be given for measures that strengthen the ability of properties to withstand damage from natural disasters."

Administered by the National Flood Insurance Program, federal flood policy was originally intended to require participation by those involved and ensure that premiums were appropriate for the risks and costs involved.

But as is generally the case with government insurance programs, local and congressional politics got in the way.

"Almost none of these good intentions proved justified," wrote Eli Lehrer at The Weekly Standard. "The requirement to purchase insurance or lose federal aid fell by the wayside as soon as hard-hit areas came crying to Congress."

The government also backed down on actuarial requirements, so the "insurance" program became a pure subsidy, Lehrer wrote. Meanwhile, communities continued to improve risky developments.

Meanwhile, subsidies to NFIP became the rule. "Congress periodically forgave the program’s debts," Lehrer argued, "and, following Hurricanes Katrina, Rita and Wilma in 2005, authorized it to borrow $20 billion from the Treasury that it had no chance of ever paying back. On the eve of Hurricane Sandy, the NFIP still owed the Treasury more than $17 billion, with another chunk of debt taken out to pay claims from Hurricane Ike in 2008."

“The best thing that could possibly come out of Sandy," Robert S. Young, a coastal geologist at Western Carolina University told the New York Times, "is if the political establishment was willing to say, ‘Let’s have a conversation about how we do this differently the next time.' We need to identify those areas — in advance — that it no longer makes sense to rebuild.”

Eric Schulzke writes on national politics for the Deseret News. He can be contacted at eschulzke@desnews.com.

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