Rising Interest Expenses

On Sept. 30, 2022, the NFIP made a semi-annual interest payment of $300 million to the U.S. Treasury. With this payment, the NFIP has now paid over $5.7 billion in interest since Hurricane Katrina hit the United States in 2005.

The NFIP is projected to pay an additional $5.3 billion of interest over the next 10 years, for a total of $9.3 billion by 2027. To put this figure in perspective, interest expenses paid could more than cover the 130,000 claims paid to survivors of Hurricane Sandy.

The NFIP’s interest expense is a function of debt principal and the prevailing interest rates. Prior to Hurricane Katrina, the NFIP paid back all debt along with corresponding interest. However, catastrophic losses in 2005 led to more than $16 billion in debt that the NFIP is not structured to pay off. Given the high interest rates at the time, the NFIP paid close to $700 million in annual interest for three years. Interest rates dropped after 2008 and the NFIP paid less in interest despite growing debt resulting from Hurricane Sandy and later storms.

The NFIP exhausted its borrowing authority with the U.S. Treasury following the historic 2017 hurricane season, before receiving $16 billion of debt cancellation. The program now carries $20.525 billion of debt and pays nearly $1 million in interest daily.

As interest rates increase, payments on this debt are projected to grow as well. FEMA has mitigated against some of the risk of rising interest rates by locking in more than half of its debt portfolio in long-term notes. However, the agency will need to refinance some of the NFIP debt in March 2023 at higher rates.

The NFIP is not built to handle this level of debt and its interest payments. FEMA will be unable to pay the debt as interest continues to consume revenue that would otherwise serve to grow the NFIP’s ability to pay claims to insured survivors.

FEMA proposed to the 117th Congress to eliminate the interest on future debt as well as the cancellation of the current $20.5 billion debt.  These measures are critical to putting the NFIP on a sound financial framework, thereby allowing the program to maximize its wherewithal to aid flood survivors.

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