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FEMA reform could sharply drive up cost of flood insurance

FARGO -- City officials are concerned that new national regulations could mean sharp jumps in flood insurance premiums for many Fargo homeowners -- yearly increases that could start as early as next year.

The National Flood Insurance Program, administered by the Federal Emergency Management Agency, is working on phasing out its subsidy program in an attempt to make the program self-supportive.

Policyholders who were previously subsidized -- like those paying a lower rate because their homes were once not in the floodplain -- could see their rates rise by 20 percent every year until they reach the actuary rate, a price that matches their estimated risk level.

"The higher the risk, the higher the rate. The lower the risk, the lower the rate," said Norm Ashford, an insurance specialist for FEMA's Region VIII, which includes North Dakota.

In Fargo, that could be up to 20 percent of homes, City Administrator Pat Zavoral said Thursday. That's about the same percentage of flood insurance policies that FEMA says are subsidized nationwide.

The changes stem from the Biggert-Waters Flood Insurance Reform Act of 2012, signed into law by President Barack Obama last July.

For Fargo officials, this means the heat is on to build and certify levees to 42.5 feet, which includes the required 3 feet of freeboard to protect to the FEMA 100-year river level of 39.5 feet.

If the city fails to build the dikes to a certifiable level and lessen the floodplain, residents will have mandated flood insurance, and those who were grandfathered in with lower rates could see a price bump.

But $200 million of work still remains for the city to protect properties at 39.5 feet or below, on top of $40 million already done since 2009, Zavoral said.

"It's going to be a race," he said, to build and certify dikes before grandfathering ends in 2014.

There is also great concern that FEMA will eventually use more updated U.S. Army Corps of Engineer data and raise the 100-year flood to 42.5 feet, meaning certified levees here would need to be 45.5 feet, an impossibility for the city, Zavoral said.

"We can't tie into anything (at 45.5 feet)," Zavoral said. "It throws almost all of Fargo into a floodplain (with) flood insurance requirements."

The only option that allows Fargo to keep certifiable 42.5-foot levees and stay out of the floodplain is the $1.8 billion proposed diversion around Fargo and Moorhead, Minn., Zavoral said.

In a meeting at City Hall here earlier this week, Sen. John Hoeven said he was going to work to have the Red River Valley grandfathered into lower insurance rates, but FEMA officials say grandfathering was never meant to be a permanent fix.

"The whole idea is that anybody that's getting a subsidy or not paying actuarial rates, the aim is to eliminate that so that the program can get on sound, fiscal footing," said Jerry DeFelice, a regional FEMA spokesman.

Fargo officials are concerned the city's "basement exception" could also be nixed because it's considered a form of grandfathering, said City Engineer April Walker.

For insurance purposes, FEMA requires that the lowest floor of a residential building, including basements, be above the Base Flood Elevation, unless the community has a basement exception.

FEMA officials said Thursday they didn't know the future of the exception.

"We don't want to mislead anybody until we know fully what's happening," Ashford said.

There are three reasons that policies have been FEMA-subsidized.

Subsidies for policies on second, nonprimary homes ended Jan. 1. Federal help on policies for homes that were once out of the floodplain but are now in one are expected to phase out by October 2014.

Subsidies for homes built before the floodplain here was first mapped -- called pre-Flood Insurance Rate Map structures -- will also end, but regional FEMA officials didn't know when.

About 14.8 percent of policies in Cass County are pre-FIRM, said Dave Kyner, a national flood insurance program specialist for North Dakota.

If owners sell their pre-FIRM structure, lapse on a payment, have severe and repetitive damage or buy a new policy, they will trigger the new actuary rate, which FEMA documents say could be 2.5 times their current premium.