Milton threatens to trigger flood insurance reckoning for Congress

Hurricane Milton, a monstrous storm set to hit western Florida Wednesday night, is poised to deplete the finances of the government’s chronically indebted flood insurance program. Congress is already bracing for a fight over what to do about it.

Key lawmakers and aides are beginning to game out the likely impact on the National Flood Insurance Program, which is the primary option for millions of American homeowners to protect their finances from catastrophic flooding.

The emerging view from several lawmakers and staffers is that NFIP claims spurred by Milton and last month’s Hurricane Helene will likely exhaust the program’s nearly $5 billion in funds and force it to tap $9.9 billion in Treasury borrowing authority. While the NFIP collects premiums and pays out claims similar to a typical insurer, it’s been upside down financially because of weaknesses in how it assessed flood risks for decades and giant losses brought by devastating storms including Hurricane Katrina.

Some on Capitol Hill expect Milton could push the NFIP to the edge of what it can borrow from Treasury, potentially forcing Congress to raise its borrowing cap or to pursue some kind of alternative funding to ensure that claims are paid.

Nearly 2 million NFIP policies are in areas hit by last month’s Helene or threatened by Milton, which has shifted between a Category 4 and 5 storm this week. Milton is expected to cause much bigger losses than Helene, which hit hardest in areas with relatively low levels of flood insurance coverage. Florida has more than 1.7 million NFIP policies.

“The fundamental question here is, will $15 billion be enough to cover Helene and a Category 5 that hits Tampa?” said one House Financial Services Committee GOP staffer granted anonymity because the person wasn’t authorized to speak publicly. “No, $15 billion probably would not ultimately be enough money.”

The looming disaster is set to rekindle long-running political conflicts about how to shore up the program. Congress has struggled for years with how to revamp the NFIP, amid clashes over whether changes would drive up the cost of coverage and housing. The prospects for an emergency intervention to ensure claims are paid if such a move is necessary post-Milton are likewise looking fraught as opposing ideas emerge over how to bridge the gap. Among them: Whether to simply raise the NFIP’s borrowing authority, appropriate money to pay policyholders or cancel more of the NFIP’s debt, as Congress did with $16 billion in debt forgiveness to pay claims after 2017’s string of hurricanes.

“It's been nearly impossible to try to get any type of consensus on this,” said Rep. Garret Graves, a Louisiana Republican. “The way that we prepare for disasters and the way we recover from them just needs to be fundamentally changed because at the end of the day, disaster victims are re-victimized by the stupidity and inefficiency of our federal government.”

Graves said in an interview that he raised the issue with House Financial Services Chair Patrick McHenry (R-N.C.) on Monday. House Financial Services and Senate Banking have jurisdiction over the NFIP and its borrowing authority.

“My takeaway was that [McHenry’s] frustrated by all the landmines out there in the flood insurance space,” Graves said.

According to House aides granted anonymity, McHenry and the lead Democratic member of his committee, Rep. Maxine Waters of California, have clashing views on how to free up cash for claims if such a move is warranted, despite coming together in the past on long-term reform plans. McHenry would favor raising the NFIP’s borrowing cap or appropriating funds, while Waters has long advocated for debt forgiveness. Congress has imposed a $30.4 billion limit on the NFIP’s ability to borrow from Treasury.

McHenry and Waters spokespeople declined to comment.

Lisa Peto, who worked on NFIP issues as a former Financial Services Committee chief counsel to Waters, said she expects the borrowing authority to be raised as it has in the past but that it’s less clear whether there is political will to forgive the debt.

“There may be some backlash from lawmakers representing less 'risky' areas that have raised concerns in the past about cross-subsidization,” said Peto, who is now a partner at the government affairs firm Mindset.

Lawmakers are beginning to stress that Congress will ensure NFIP policyholders receive the funds they’re owed. FEMA, which operates the NFIP, is facing mounting pressure across its operations thanks to Helene and now Milton.

“We're going to do everything we can to make sure that there is not a delay in the ability of FEMA to respond to their needs,” said Sen. Mike Rounds, a South Dakota Republican who sits on Senate Banking. “It should always be a concern that you're going deeper in debt with a program that has to be reformed, but it is not inconsistent with the way the program has been run in the past.”

The NFIP did not respond to a request for comment.

Congress, which won’t return to Washington until after the November elections, likely has ample runway to address any kind of NFIP claims crunch that arises.

"It is definitely a possibility that you could have, with combined Helene plus Milton, claims that would be more than the NFIP borrowing authority,” said former NFIP chief actuary Andy Neal, who is now a managing director at Aon. “The good news is, with a $9.9 billion cushion provided by the borrowing authority, there would be time for action to be taken."