TheWeekInCongress.com
Week Ending September 9, 2005
H.R.804 To exclude from consideration as income certain payments under the national flood insurance program.
BRIEF
An earlier 2005 law created after the 2004 hurricane season in Florida (HR1134) provided that money paid to a property owner through two programs that mitigate potential disaster by paying to improve the structure or to move it out of harms way is not considered income and is not taxable by the IRS. The average pay out for such mitigation assistance is $83,000.
This bill takes the tax break a bit further to declare that such assistance will not be considered income or a resource of the property owner when determining the eligibility for benefits or the benefit level for income assistance funded by a Federal program. Many federal benefits come with the restriction of means testing or income testing to determine the amount of the benefit. This bill provides that any mitigation payments will not be considered income and so will not effect the amount of the federal benefit. The average payout for this type of mitigation assistance is $53,000.
Sponsor: Representative Richard H. Baker (R-LA-6th)
Vote: Passed House by voice vote (July 12, 2005). Passed Senate by Unanimous Consent (September 8, 2005)
Cost to the taxpayers: Estimated $10 million through 2010. {Editor's note: The cost estimate for this bill was calculated before the extensive flood damage on the US Gulf Coast due to Hurricane Katrina. The Senate did not provide any adjusted cost data.} The earlier bill was calculated to cost $6 million in 2006, $36 million over the 2006-2010 period, and $109 million over the 2006-2015 period.
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MORE INFORMATION
Congress created the National Flood Insurance Program (NFIP) in 1968 to address the increasing costs of taxpayer-funded disaster relief for flood victims and the increasing amount of damage caused by floods. The Federal Emergency Management Agency (FEMA) administers the NFIP. Home and business owners are able to purchase flood insurance if their properties are located in communities that adopt and enforce floodplain management ordinances to reduce future flood damage. One of the objectives of the NFIP is to make flood insurance affordable, so full actuarial rates are not charged.
The Bunning-Bereuter-Blumenauer Flood Insurance Reform Act of 2004 (P.L. 108-264) was signed into law on June 30, 2004. This legislation, sponsored by Sen. Jim Bunning (KY), Rep. Doug Bereuter (NE) and Rep. Earl Blumenauer (OR), reauthorized the NFIP until 2008 and established a pilot program for the mitigation of severe repetitive loss properties, which FEMA estimates cost the program $200 million annually.
The Bunning-Bereuter-Blumenauer law primarily addresses the problem of repetitive loss properties through flood mitigation. The pilot program authorized in the legislation requires people to either accept mitigation assistance or face significantly higher premiums. Owners who refuse assistance will no longer be eligible for subsidized flood insurance far below the actuarial risk rate they should be paying. Over time, as mitigation grants and preventative measures change the nature of repetitive loss properties, the NFIP is expected to save a significant amount of money.
H.R. 804, introduced on February 15, 2005, will prevent federal agencies that administer means-tested or income-tested benefits from considering NFIP mitigation grants as income. H.R. 804 is necessary due to an Internal Revenue Service (IRS) ruling in July 2004 that such grants must be reported as income for tax purposes. This IRS ruling has caused significant uncertainty in the administration of the Bunning-Bereuter-Blumenauer Flood Insurance Reform Act of 2004. Anecdotal information has revealed that a significant number of homeowners have refused mitigation offers not only due to the fear of a potential tax liability, but also the potential for other unknown liabilities imposed by other federal government agencies. These penalties could include the loss of certain federal education, nutrition and health care benefits. H.R. 804 eliminates the potential for additional penalties by preventing federal government agencies (other than the IRS) from considering NFIP flood mitigation grants as income.
The precedent for this exception is found in the Stafford Act, which explicitly states that any disaster or pre-disaster mitigation payments made to homeowners under that Act are not to be considered as income by any federal agency administering a means- or income-tested benefit. By incorporating this language in the National Flood Insurance Act, H.R. 804 will resolve any additional uncertainty by likewise preventing federal agencies from considering flood mitigation grants as income.
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No reproduction or distribution without written permission from TheWeekInCongress.com.