How The Feds Blocked Effective Flood Insurance

As the floodwaters brought by Hurricane Harvey last week recede and new hurricane Irma moves slowly toward the Eastern U.S., it might be edifying to review how millions of Americans, despite federal anti-flood efforts, came to live and work in hazardous to dangerous flood-prone areas.

The foundation of the current disaster traces back at least to the late 1920s under Republican interventionist Herbert Hoover. In 1927, a very destructive flood occurred along the Mississippi River. Secretary of Commerce Hoover’s relief campaign greatly increased the power of the U.S. Army Corps of Engineers to implement supposed flood protection. 

No doubt, the Flood Control Act of 1928 helped construct what was considered one of the most impressive systems of levees in the world along the Mississippi River. However, the one thing it did not do was control flooding. While the new levee system prevented flooding in some areas, it quickened the natural current of the river which helped produce flooding in other areas. Other unforeseen consequences were the reductions in natural soil deposits and natural flow of water into the river's flood plains.

Less than a decade later, another damaging flood in New England helped drive the passage of the National Flood Control Act of 1936. This Act was a real turning point in terms of centralization. Besides doubling the size of the federal flood-control program, it signaled that Congress would no longer merely provide occasional flood relief and regard floods as principally a local matter. It effectively enlisted the federal government and Army Corps of Engineers in the battle against floods.

For the rest of the 1930s and 1940s, private insurance markets were undermined because the Army Corps of Engineers built hundred-year flood walls which reduced risk just enough for homeowners to make private flood insurance too costly. On the other hand, private insurers saw these walls as insufficient protection which did not reduce risk enough. Regardless, an impasse was created for private markets that was both figuratively and literally cemented in place by the Army Corps.

Enter the New Deal central planners of the Tennessee Valley Authority (TVA) in 1953. TVA began monitoring flood-prone areas in and around one hundred and fifty towns and cities in its jurisdiction. At first, TVA used a worst-case standard from the Army Corps, regardless of whether such a flood had ever actually occurred.

This stringent standard was quickly abandoned when it was realized that it would eliminate huge areas of potential development that not only local private and public planners wanted, but TVA as well since part of its conflicted mission was spurring development. Thus TVA adopted a new standard skewed in favor of development that was based on past floods that occurred inside a 60- or 100-mile zone from proposed development.

Outside TVA’s jurisdiction, the U.S. Geological Survey and Army Corps of Engineers mapped flood plains with roughly the same backward-looking standard. By the end of the 1960s, all three agencies had laid the groundwork for a national map of floodplains. A very bad standard had been created.

Of course no tapestry of disastrous policies would be complete without a contribution by Lyndon Baines Johnson, thus the Southeast Hurricane Disaster Relief Act of 1965. This Act authorized $500 million in spending to assist in repairing damage created by Hurricane Betsy.

Next came the National Flood Insurance Act of 1968, which created the National Flood Insurance Program (NFIP), which covered up to $250,000 in damage to single-family houses and buildings in cities and towns meeting the flawed federal flood-plain criteria.

The absolute death knell for any semblance of economic and actuarial soundness in the NFIP came in 1973, when Congress allowed coverage to be extended to property owners who should have enrolled in the program and paid for insurance but did not.

While none of this is to say that had more rigorous private standards prevailed and the Army Corps and TVA never been created, that no one's residence or workplace would ever have flooded.

However, there's no doubt that the federal government's perverse subsidization of residential and commercial development in flood-prone areas as well as artificially cheap flood insurance completely detached from risk assessment have contributed to not only the untold loss of billions of dollars of property, but lives as well.