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Second Appeal Letter
PA ID# 113-12000-00; City of Cedar Rapids
PW ID# 10502; Insurance Deductions
July 30, 2012
Iowa Homeland Security and Emergency Management Division
7105 NW 70th Avenue
Camp Dodge, Bldg W-4
Johnston, Iowa 50131-1824
Re: Second Appeal–City of Cedar Rapids, PA ID 113-12000-00,
Insurance Deductions, FEMA-1763-DR-IA, Project Worksheet (PW) 10502
Dear Mr. Schouten:
This letter is in response to a letter from your office dated May 12, 2011, which transmitted the referenced second appeal on behalf of the City of Cedar Rapids (Applicant). The Applicant is appealing the Department of Homeland Security’s Federal Emergency Management Agency’s (FEMA) decision to apply an $11,000,000 mandatory National Flood Insurance Program (NFIP) deduction to the replacement of the Applicant’s flood damaged property at the Sinclair Warehouse Complex (“Sinclair Complex”) and is requesting that the deduction be adjusted to $482,051.
In May 2008, severe storms and flooding caused extensive damage in the City of Cedar Rapids, including damage the Applicant’s facilities. The Sinclair Complex is the former location of the Wilson-Sinclair/Farmstead Foods food processing plant. The Applicant purchased the site in 2007 and leased portions of the facilities for use as commercial warehouse and office space. Due to its proximity to the Cedar River, the Sinclair Complex experienced high velocity flooding and significant inundation from flood waters. After the flood, local building officials determined that the damaged facilities at the Sinclair Complex were unsafe, pursuant to Cedar Rapids Municipal Code, and issued a notice and order to demolish the structures in December 2009. The Sinclair Complex, which is located in a Special Flood Hazard Area (SFHA), was not covered by flood insurance. FEMA prepared PW 10502 for $20,743,944 for replacement of the structures, but subsequently reduced the amount to $9,521,249 based on the estimated area of 225,445 square feet in active use at the time of the disaster. Section 406(d) of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act) requires FEMA to reduce the amount of eligible assistance for a facility in a SFHA by the lesser of the value of the facility on the date of the flood damage or the maximum amount of the insurance proceeds which would have been received had the facility been covered by flood insurance. During the insurance review of the project, FEMA applied a mandatory NFIP deduction of $11,000,000 to the project based on a maximum insurance proceed of $500,000 for each of the 22 buildings at the Sinclair Complex. On August 26, 2010, FEMA obligated PW 10502 for the project for $5,000 in direct administrative costs.
In the first appeal letter dated August 30, 2010, the Applicant disputed FEMA’s calculation of the eligible square footage and requested that the remaining areas that were unused, but which the Applicant intended to use, qualify for replacement. The Applicant also requested that the buildings be treated as one insurable property for the NFIP deduction and that proceeds received from a fire insurance policy not be deducted as duplicative benefits. The Regional Administrator denied the appeal with a letter dated January 31, 2011, stating that the Applicant failed to demonstrate active use of the additional building space and explained that the lease documentation submitted by the Applicant established 54,781 square feet of space in active use at the time of the disaster. Further, the Regional Administrator explained that the mandatory NFIP deduction was applied to each of the 22 structures because the Applicant identified them as separate buildings on the demolition orders. The Regional Administrator also noted that the referenced fire insurance proceeds had not been deducted from PW 10502.
The Applicant submitted a second appeal on April 1, 2011, which the State forwarded to FEMA on May 12, 2011. In the second appeal, the Applicant concedes that less than half of the area of the facility was in active use during the disaster. However, the Applicant maintains that FEMA’s determination regarding the NFIP deductions is incorrect. The Applicant contends that there were only 8 buildings on the property, several with multiple additions, and that it listed each of the 22 structures separately on the demolition order to avoid confusion during demolition. Furthermore, the Applicant insists that the semantic disagreement over what constitutes a building is rendered irrelevant by an assessment of the property completed by the Cedar Rapids City Assessor in 2007. The Applicant submitted a copy of the City Assessor’s report, which shows that the structures on the property had an aggregate value of $482,051 at the time of the disaster. FEMA convened a teleconference with representatives of the Applicant on November 17, 2011, to discuss the subject appeal. During the call, the Applicant reiterated that the assessed value of the buildings represents the maximum amount of the NFIP deduction.
Section 406(d) of the Stafford Act mandates a reduction in the amount of Public Assistance funding for a facility that is insurable under the NFIP, located in a SFHA, and damaged by floodwaters in a major disaster declared by the President. For insurable facilities that do not have flood insurance, FEMA will reduce eligible project funding by the lesser of the value of such facility on the date of the flood damage, or the maximum amount of insurance proceeds that would have been received had the building and its contents been fully covered by a flood insurance policy. The loss settlement provided under a standard flood insurance policy for general property is the lesser of the amount of insurance, actual cash value or the amount it would cost to repair or replace the property (44 CFR Part 61, Appendix A(2)). In this case, the assessed value (actual cash value) of the Applicant’s property is the lowest amount and is, therefore, the appropriate mandatory NFIP reduction.
However, based on documentation submitted to FEMA by the Applicant to demonstrate active use of the property, only 54,781 square feet of space was in active use at the time of the declared event and, is therefore, eligible for restoration funding under Public Assistance (44 CRF 206.226(k)(2)). FEMA’s cost estimate to replace 225,445 square feet of space as documented in PW 10502 is $9,521,249 or $42.23 per square foot. Using that unit cost, the cost estimate to replace the portion of the property in active use at the time of the disaster is $2,313,401.
The space in active use was leased to three companies and located in two of the eight buildings: Buildings 4 and 5. According to the 2007 building assessment, the assessed values of Buildings 4 and 5 were $119,076 and $230,749, respectively. Therefore, the mandatory NFIP reduction is equal to the assessed values of Buildings 4 and 5, which is a total of $349,825. The eligible funding amount for the replacement of the portion of the facility in active use at the time of the disaster is the estimated cost for replacement of space in active use ($2,313,401) less the mandatory NFIP reduction ($349,825), which results in total eligible funding of $1,963,576.
I have reviewed the information submitted with the appeal and have determined that the assessed value is the appropriate NFIP deduction for the Applicant’s buildings at the Sinclair Warehouse Complex. However, the Applicant’s documentation supports that only 54,781 square feet of the facility was in active use at the time of the disaster. By copy of this letter, I am informing the Regional Administrator of my determination and requesting implementation of this determination through a version of PW 10502 to reduce the square footage eligible for replacement to 54,781 square feet and to reduce the NFIP reduction from $11,000,000 to $349,825. Therefore, the net eligible funding for the project is $1,963,576.
This adjustment to the NFIP reduction also affects PWs 10445 and 10524 for the demolition of the facilities at the Sinclair Complex. The excess NFIP reduction from the PW in question in this second appeal was previously applied to the demolition projects. As part of this second appeal determination, I am also requesting that FEMA Region VII appropriately adjust
PWs 10445 and 10524 to reflect the revised NFIP insurance reduction.
Please inform the Applicant of my decision. This determination is the final decision on this matter pursuant to 44 CFR § 206.206, Appeals.
cc: Beth Freeman
FEMA Region VII