FEMA Initiates NEPA Review Regarding Significant Changes to the National Flood Insurance Program

On May 16, 2012, the Federal Emergency Management Agency (“FEMA”) issued a Notice of Intent to prepare an Environmental Impact Statement (“EIS”) evaluating the environmental effects of the National Flood Insurance Program (“NFIP”) both as it is currently implemented and may be modified through potential reforms.  The deadline for submitting comments is July 16, 2012. 

Both Congress and FEMA are contemplating significant changes to the NFIP through a combination of statutory and regulatory changes and “interpretative guidance.”  Those changes are likely to impact significantly the ability of persons/entities to use floodplain areas within the country, due to changes in the development regulations applicable to floodplains, and/or due to significant increases in the cost to insure developments within the floodplain.  These changes will in turn affect the value of floodplain properties.  (Congress passed revisions to the NFIP on June 29, 2012, as part of the Federal Public Transportation Act of 2012.  A forthcoming update will discuss the NFIP revisions adopted as part of that Act.)

These proposed reforms are occurring against a backdrop in which FEMA is updating the floodplain maps for large portions of the country, showing significantly expanded floodplains.  Thus, the regulations applicable to floodplains are likely to get more restrictive at the same time the boundaries of the floodplains are getting larger. 

NFIP BACKGROUND

Congress established the NFIP on August 1, 1968, following several years of severe natural disasters.   The intent of the NFIP was to reduce future flood damage through community floodplain management and to provide protection for property owners against potential flood related losses through insurance (rather than relying exclusively on emergency disaster relief programs).   To qualify to participate in the NFIP, a community must adopt and maintain a local floodplain management ordinance that meets the minimum requirements set forth in the NFIP.  Absent such an ordinance, the citizens within the jurisdiction cannot obtain flood insurance through the Program.  The NFIP makes flood insurance a mandatory condition of receiving any federal or federally-related assistance in a flood event. 

Since its adoption in 1968, the NFIP has faced ongoing significant criticism.  Some have argued that the NFIP does not do enough to require property owners facing potential flood hazards to purchase flood insurance.  Others have criticized the Program for encouraging development within floodplains by offering flood insurance at significantly subsidized rates that insulate property owners/tenants from the “true” costs and risks of developing within the floodplain.  Others have criticized the floodplain maps generated as part of the Program, both as over inclusive and under inclusive.  Recently environmental groups have initiated lawsuits around the country challenging the NFIP on the grounds that FEMA has failed to consult with the U.S. Fish and Wildlife Service and/or the National Marine Fisheries Service regarding the impact of the NFIP on Endangered Species Act (“ESA”) listed species in floodplains and surrounding areas.  These criticisms (and others) are driving FEMA’s current reform efforts.

FEMA’S PROPOSED NEPA REVIEW AND EIS

The purpose and need statement appended to the Notice of Action explains FEMA’s goals as follows: 

To implement the Congressional mandate for a program that:

• Provides continuing studies identifying flood hazards;
• Provides for a reasonable method of sharing the risk of flood losses through actuarially sound flood insurance
• Provides flood insurance in exchange for State, Tribes and local governments adopting minimum land use controls established by FEMA that regulate development of land within the floodplain and minimize damage caused by flooding
• Encourages States, Tribes, and local governments to adopt land use controls and floodplain management standards that are higher than the minimum standards required for NFIP participation
• Furthers the purpose of the ESA by insuring that the NFIP is not likely to jeopardize the continued existence of any threatened or endangered species, or result in the destruction or adverse modification of critical habitat
• Carries out the mission of the NFIP consistent with the National Historic Preservation Act
• Achieves environmental justice by identifying and addressing, as appropriate, disproportionately high adverse effects of the NFIP on minority and low-income populations
• Complies with constitutional limitations on the taking/restriction of property rights

The areas proposed for EIS analysis include:

• Impact on biological resources (threatened and endangered species and critical habitat, essential fish habitat, and special status species)
• Impact of/interaction with climate change
• Impact on cultural resources/historical properties
• Land use (redevelopment within existing floodplains, zoning restrictions)
• Public safety
• Socio-economic consideration (unequal distribution of risk to lower income populations, impacts from development restrictions)
• Impact on water resources (wetlands and water quality/quantity)
• Geophysical features (floodplains, stream channels, erosion-prone areas, soils, subsidence)
• Relationship to coastal resources (coastal uses, coastal barrier resources, coastal hazard areas)

The alternatives proposed for consideration as part of the EIS include :

• Program with enhanced floodplain management standards, including provisions to address an Endangered Species and Habitat Concerns Alternative.  Under this alternative FEMA would modify the NFIP in the following areas:
• Increase elevation standards for new construction
• Floodplain management standards for critical facilities
• Stronger restrictions on floodway development
• Integrate future conditions and residual risk in floodplain management
• Discourage fill in floodplains
• Account for the impacts of floodplain development on the natural and beneficial functions of floodplains to include endangered and threatened species
• No Action Alternative.  Under this alternative FEMA would continue to administer and implement the NFIP as it stands today.  This encompasses FEMA’s administration of the program and States, Tribes, and local governments’ implementation of the program.
• Discontinuation Alternative.  Under this alternative Congress would discontinue the program as of a particular date.  This alternative is used to provide a comparison of the “without program scenario.”
• Request for legislative authority to remove existing subsidies and cross subsidies for Flood Insurance Policies Alternative.  Under this alternative FEMA would modify the NFIP in the following areas:
• Remove subsidies/cross subsidies for non-primary residences
• Remove subsidies/cross subsidies for non-residential
• Phase out subsidies/cross subsidies for remaining structures
• A program with enhanced floodplain management standards, including provisions to address endangered species and habitat concerns and legislative authority to remove existing subsidies and cross subsidies for Flood Insurance Policies Alternative.

CONCLUSION

The changes to the NFIP approved by Congress last week as part of the Federal Public Transportation Act of 2012, as well as the additional reforms being contemplated by FEMA, will significantly affect when and how floodplain properties may be used and developed.  In general, the currently formulated reform proposals appear aimed at restricting floodplain development and/or making it significantly more expensive, as well as the possibility of getting FEMA out of the flood insurance business.  See upcoming Alert regarding Congress’ approved revisions of the NFIP.  Local jurisdictions, industry groups and property owners with interests in floodplain properties should be proactive to protect their interests as FEMA and Congress contemplate and undertake these reforms.  For example, it is important that FEMA consider not only the environmental consequences of developing within the floodplain, but also the consequences of pushing development outside of previously developed floodplain areas. 

Submitting comments in response to FEMA’s Notice is a meaningful way to begin participating in the broader debate regarding what use should or should not be made of the floodplains and the effects of both permitting and restricting their use.