There are a number of government-sponsored enterprises, government-chartered corporations, and government-owned corporations, such as Fannie Mae, the Corporation for Public Broadcasting, and the Tennessee Valley Authority.
The flood insurance program should be arranged as either a government-sponsored enterprise or a government-chartered corporation. The updating of maps and the adjustment of premiums should not be subject to political whims, as there is a proven record of moral hazard in failing to adjust the risk ratings to what exists in the real world.
States should have a role in funding the program that covers their state, with a choice between property taxes, real estate sales tax, a rake on mortgage payments, or other mechanisms.
Under the current regime, the program gives a false sense of security. Many at-risk properties without coverage, many more that aren’t paying according to their real risks. Without truthful premium costs, the market gets a distorted risk signal, knowing the federal government will pay for municipalities’ and states’ messes. Sound familiar?
The political environment makes risk adjustment difficult. Nobody wants to pay more, but they want flood protection. If the program is private, the owners want to ensure they are keeping liabilities in check, so they will keep premiums rising with risks. Specifically, if the lenders are on the hook for underinsured properties that are damaged, they will demand proper insurance.
Similar moves should be made for other issues that should be outside of political tampering, such as the gas tax and vehicle efficiency standards, drug price negotiations for public healthcare programs, and other similar budgetary matters. If these various measures require a waiver process, that’s fine, but generally firms and individuals should pay what’s required for the efficient operation of the system as designed.