This Insight evaluates the National Flood Insurance Program (NFIP) borrowing authority to receive loans from the Treasury and the current financial situation of the NFIP.

NFIP Funding

Funding for the NFIP is primarily maintained in an authorized account called the National Flood Insurance Fund (NFIF). The NFIP is funded from receipts from the premiums of flood insurance policies, including fees and surcharges; direct annual appropriations for specific costs of the NFIP (only for flood mapping); and borrowing from the Treasury when the NFIF's balance has been insufficient to pay the NFIP's obligations (e.g., insurance claims). Since the end of FY2017, 15 short-term NFIP reauthorizations have been enacted. Key provisions of the NFIP were extended from September 30 until December 8, 2017 (P.L. 115-56), extended again until December 22, 2017 (P.L. 115-90), and again until January 19, 2018 (P.L. 115-96). The NFIP lapsed between January 20 and January 22, 2018, and received a fourth short-term reauthorization until February 8, 2018 (P.L. 115-120). The NFIP lapsed again for eight hours during a brief government shutdown on February 9, 2018, and was then reauthorized until March 23, 2018 (P.L. 115-123). The NFIP received a 6^th reauthorization until July 31, 2018 (P.L. 115-141), a 7^th until November 30, 2018 (P.L. 115-225), an 8^th until December 7, 2018 (P.L. 115-281), a 9^th until December 21, 2018 (P.L. 115-298), a 10^th until May 31, 2019 (P.L. 115-396), an 11^th until June 14, 2019 (P.L. 116-19), a 12^th until September 30, 2019 (P.L. 116-20), a 13^th until November 21, 2019 (P.L. 116-59), a 14^th until December 20, 2019 (P.L. 116-69), and a 15^th reauthorization until September 30, 2020 (P.L. 116-93). These extensions did not increase the NFIP's borrowing limit or provide additional funds to the NFIP.

NFIP Borrowing Authority

The NFIP was not designed to retain funding to cover claims for truly extreme events; instead, the National Flood Insurance Act of 1968 allows the program to borrow money from the Treasury for such events. For most of the NFIP's history, the program has been able to cover its costs, borrowing relatively small amounts from the Treasury to pay claims and to repay the loans with interest. Table 1 and Table 2 show NFIP borrowing, repayments, and debt from 1981 to 2019. Comparable figures are not available before 1980. When the NFIP was established, the borrowing limit was $250 million. In 1973, the borrowing limit was increased to $500 million, or $1 billion with the approval of the President. The borrowing limit was increased to $1.5 billion in 1996; however, borrowing at that level was not required before 2005. The largest debt was $917 million in 1997, which was reduced to zero by the end of FY2003. However, Congress increased the level of borrowing to pay claims in the aftermath of the 2005 hurricane season (particularly Hurricanes Katrina, Rita, and Wilma). Congress increased the borrowing limit to $18.5 billion in November 2005 and further increased the borrowing limit to $20.775 billion in March 2006. In July 2010, the borrowing limit was decreased to $20.725 billion. In 2013, following Hurricane Sandy, Congress increased the borrowing limit to the current $30.425 billion. Since 2005, the NFIP has made six principal repayments totaling $2.82 billion and has paid $4.4 billion in interest. The program pays nearly $400 million annually in interest.

Hurricanes Harvey, Irma, and Maria

In January 2017, the NFIP borrowed $1.6 billion due to losses in 2016 and debt repayments. On September 22, 2017, FEMA borrowed the remaining $5.825 billion from the Treasury, reaching the NFIP's authorized borrowing limit of $30.425 billion. On October 26, 2017, $16 billion of NFIP debt was canceled to make it possible for the program to pay claims for Hurricanes Harvey, Irma, and Maria. This represents the first time NFIP debt has been canceled, although Congress appropriated funds between 1980 and 1985 to repay NFIP debt. FEMA borrowed another $6.1 billion on November 9, 2017, to fund estimated 2017 losses, including those incurred by Hurricanes Harvey, Irma, and Maria, increasing the debt to $20.525 billion. The NFIP currently has $9.9 billion of remaining borrowing authority.

In January 2017, FEMA paid a $150 million premium to purchase $1.042 billion of reinsurance. The contract was structured to pay 26% of losses between $4 billion and $8 billion arising from a single flooding event. Claims for Hurricane Harvey exceeded $8 billion, triggering a full reinsurance claim. FEMA has not claimed on the 2018 and 2019 reinsurance purchases, as no named storms in 2018 or 2019 reached the threshold of $4 billion in claims.