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Since Hurricane Katrina devastated the Gulf Coast in 2005, the National Flood Insurance Program’s (NFIP) debt to the U.S. Treasury has remained steep; it currently is $20.5 billion. In 2022 alone, the program will pay over $280 million in interest on that debt. It is critical to explain how the program came to amass such a burdensome debt so that stakeholders can put this crucial program on a sound financial footing.

In recent decades, weather patterns have increased flood risk to an extent that was unimaginable at the NFIP’s inception, over fifty years ago. From the outset, the program was never intended to generate a profit. It was established because due to the nature of flood risks, commercial insurance was not generally available.

In response, Congress formed the NFIP in 1968 to provide a public sector option designed to deliver a cost-effective outcome combined with a risk identification and floodplain management programs to encourage communities to take action to minimize risk from flooding. The NFIP also was intended to provide an alternative to providing post-disaster assistance to property owners after a major flooding event . The NFIP now covers millions of structures and their contents, but since 2005 the program has been in the red after years of major flooding events.

Over the last decade, the NFIP’s annual losses fluctuated widely, ranging from $380 million in 2014 to greater than $10 billion in 2017 after Hurricanes Harvey, Maria, and Irma. Additional major flood events included Hurricane Sandy in 2012, which affected several states and caused $11.1 billion in damage. Far from coastlines, inland flooding, such as the August 2016 Louisiana flood which caused $3 billion in damage, can be just as perilous.

Frequent high-cost flooding will prevent the NFIP from paying its debt. The program currently uses only premiums to cover the interest on debt from prior losses, which is a practice that needs to change to improve the sound financial framework of the program The program must institute a sound financial framework that allows it to balance affordability and fiscal soundness. Without this, the NFIP’s longevity and sustainability are at risk.

In May 2022, FEMA submitted 17 legislative proposals to Congress outlining multiple reforms and actions to consider for the reauthorization for the NFIP. One of those 17 proposals would eliminate the future debt of the NFIP and implement several reforms relating to borrowing authorities and future interest. These reforms address fundamental structural challenges and are crucial to building a viable NFIP focused on mitigating suffering before, during and after a flood disaster.