National Flood Insurance Program Borrowing Authority

This Insight evaluates the National Flood Insurance Program (NFIP) borrowing authority to receive loans from the U.S. Department of the Treasury, particularly in the context of major floods, and discusses 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). Generally, the NFIP has been funded from receipts from the premiums of flood insurance policies, including fees and surcharges; direct annual appropriations for specific costs of the NFIP (currently only flood mapping); and borrowing from the Treasury when the balance of the NFIF has been insufficient to pay the NFIP's obligations (e.g., insurance claims). Key provisions of the NFIP were extended from September 30 until December 8, 2017 (Section 130 of 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 approximately eight hours during a brief government shut-down in the early morning of February 9 and was then reauthorized until March 23, 2018 (P.L. 115-123). The NFIP received a sixth reauthorization until July 31, 2018 (P.L. 115-141). However, 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 generally been able to cover its costs, borrowing relatively small amounts from the Treasury to pay claims, and then repaying the loans with interest. Table 1 and Table 2 show NFIP borrowing, repayments, and debt from 1981 to 2017. Comparable figures are not available before 1980. When the NFIP was first 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 prior to 2005. The largest debt was $917 million in 1997, which was steadily 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. The Biggert-Waters Flood Insurance Reform Act of 2012 established a reserve fund to cover future expenses, especially those from catastrophic disasters. Since the 2005 hurricane season, the NFIP has made six principal repayments totaling $2.82 billion and has paid $3.83 billion in interest. The program is currently paying nearly $400 million annually in interest. In January 2017, the NFIP borrowed $1.6 billion due to losses in 2016 (the Louisiana floods and Hurricane Matthew) and debt repayments.

Table 1. NFIP Borrowing FY1980 to FY1998

(Nominal dollars)

Fiscal Year

Amount Borrowed

Amount Repaid

Cumulative Debt

1980

917,406,008

0

917,406,008

1981

164,614,526

624,970,099

457,050,435

1982

13,915,000

470,965,435

0

1983

50,000,000

0

50,000,000

1984

200,000,000

36,879,123

213,120,877

1985

0

213,120,877

0

1986

0

0

0

1987

0

0

0

1988

0

0

0

1989

0

0

0

1990

0

0

0

1991

0

0

0

1992

0

0

0

1993

0

0

0

1994

100,000,000

100,000,000

0

1995

265,000,000

265,000,000

0

1996

423,600,000

62,000,000

626,600,000

1997

530,000,000

239,600,000

917,000,000

1998

0

395,000,000

522,000,000

Source: CRS analysis of data provided by FEMA Congressional Affairs, November 20, 2017.

Table 2. NFIP Borrowing FY1999 to FY2018

(Nominal dollars)

Fiscal Year

Amount Borrowed

Amount Repaid

Cumulative Debt

1999

400,000,000

381,000,000

541,000,000

2000

345,000,000

541,000,000

600,000,000

2001

600,000,000

345,000,000

600,000,000

2002

50,000,000

640,000,000

10,000,000

2003

0

10,000,000

0

2004

0

0

0

2005

300,000,000

75,000,000

225,000,000

2006

16,600,000,000

0

16,885,000,000

2007

650,000,000

0

17,735,000,000

2008

50,000,000

225,000,000

17,360,000,000

2009

1,987,988,421

347,988,421

19,000,000,000

2010

0

500,000,000

18,500,000,000

2011

0

750,000,000

17,750,000,000

2012

0

0

17,750,000,000

2013

6,250,000,000

0

24,000,000,000

2014

0

1,000,000,000

23,000,000,000

2015

0

0

23,000,000,000

2016

0

0

23,000,000,000

2017

13,525,000,000

16,000,000,000a

20,525,000,000

2018

0

0

20,525,000,000

Source: CRS analysis of data provided by FEMA Congressional Affairs, November 20, 2017.

a. The $16 billion of debt was cancelled rather than repaid (P.L. 115-72, Title III, ยง308).

Hurricanes Harvey, Irma, and Maria

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 cancelled to make it possible for the program to pay claims for Hurricanes Harvey, Irma, and Maria. This represents the first time that NFIP debt has been cancelled, 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, bringing the debt up 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 the losses between $4 billion and $8 billion arising from a single flooding event. FEMA has already paid over $8.6 billion in claims for Hurricane Harvey, triggering a full claim on the 2017 reinsurance. FEMA projects total NFIP claims for Hurricane Harvey of $8.7 to $8.84 billion, for Hurricane Irma of $1.003 to $1.04 billion, and for Hurricane Maria of $25 to $34 million.