Taxpayers will foot big share of post-Irene flooding costs
September 1, 2011 | 6:42am
Even if you don't live in the Northeast, Hurricane Irene is going to cost you.
The storm left behind a swath of destruction that will prove extremely expensive, with early estimates pegging the damage between $2 billion and $7 billion. And taxpayers will be left footing much of the rebuilding bill.
Blame a lack of flood insurance coverage in the Northeast, and a flawed federal insurance program that's billions of dollars in debt.
Vermont illustrates the first problem. The state faces some of the worst flooding in its history and -– according to one analysis of 2010 flood insurance data –- could have a scant 3,600 federal flood insurance policies. That means people looking to rebuild will rely on payouts from the Federal Emergency Management Agency and subsidized loans from the Small Business Administration.
But those loans and payouts are unlikely to cover the cost of reconstruction, experts said.
"The bottom line is, taxpayers are going to be left holding the bag due to the number of folks in the Eastern Seaboard that did not have flood insurance for this catastrophic event," said Mike Chaney, an insurance commissioner for Mississippi who has called for reforms to the troubled National Flood Insurance Program.
Even for the states along Irene's path, such as New York and New Jersey, that bear hundreds of thousands of policies, the damages paid out from the National Flood Insurance Program's coffers in the coming months may still ultimately come from taxpayers' pockets in the form of a bailout, experts said.
"Many people will be paid through the NFIP, which is already bankrupt, so I think that will hurt the [program's] deficit," said Erwann Michel-Kerjan, a managing director at the Wharton Risk Management and Decision Processes Center who has extensively studied the flood program. He added, "People will get money, and they will get the money very quickly."
The National Flood Insurance Program is the largest flood insurance provider in the nation, with $1.2 trillion in covered property. The program began in 1968 as a way to provide flood insurance where none privately existed and to shield taxpayers from paying for policy owners in flood-prone areas. After all, the latter group's insurance premiums, in the long run, should theoretically pay for themselves.
But today, analysts say the program is more than $17 billion in debt, is plagued by management problems and -- as with healthcare, some experts argue -- doesn't cover enough people.
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