These comments are submitted for your consideration concerning the proposed revisions to 401 KAR 4:060. While these comments are submitted outside of the close of the official comment period, I would hope that they are considered informally as you complete the rulemaking process on those revisions.
KRC supports those changes that the Division has proposed in order to eliminate inconsistencies between the state and federal floodplain regulations and to improve the efficiency and effectiveness of the program in protecting the safety of persons and property from flooding impacts.
KRC is extremely concerned, however, with one change in the proposed regulation that has the effect of substantially weakening the protectiveness of the stream construction regulations, and which could significantly impact the flood insurance programs due to serial reconstruction and restoration of structures that should as a matter of public safety and public policy be elevated or relocated due to past catastrophic flood impacts.
Under the current regulation, the term “substantial improvement” is measured over a five-year period, so that any combination of repairs, reconstruction, alteration or improvements to a structure occurring during any five-year rolling period in which the cumulative cost exceeds 50% of the market value of the structure (and excluding periodic maintenance and upkeep that does not increase the value of the structure), triggers the obligation on the part of the structure owner to demonstrate that the encroachment will have “no impact” or not result in any increase in flood levels during occurrence of the base flood discharge. Additionally, where the structure has been “substantially improved” and is located in the base floodplain of a stream, the structure must be elevated to that the lowest floor is at or above the base flood elevation. Variances and exceptions are available in the case of historic structures and in other limited circumstances of extreme hardship.
The proposal to shorten the rolling period for cumulating the expenditures on a structure to one-year has the effect of allowing structures that are located in the base floodplain of a stream or river (which is the area inundated during a 100-year frequency flood) to be improved upon, added to, or repaired and reconstructed after flooding events, up to 49% of the market value of the structure each year without having to either account for the potential impact that the addition to a structure might have on the ability of the property to pass the base flood event without obstruction or impact on other properties, or to elevate a flood-damaged structure to minimize future property and safety impacts.
The result of the proposed change will likely be that structure owners will continue to repair and rebuild flood-damaged structures in harm’s way, and the public (in particular those who have federal flood insurance) will through increased premiums, be obligated to subsidize that serial reconstruction.
In determining the regulatory impact, the agency should evaluate several issues:
1. What has been the repetitive-loss claim experience in communities across the Commonwealth that have federal flood insurance programs? To what extent will the proposed change result in additional repetitive loss claim payments from the Flood Insurance Program?
The Louisville experience is instructive in this regard, since in 2000, that county weakened a local floodplain ordinance to adopt a one-year reset for “substantial improvement” in place of a five-year reset in the original ordinance.
Looking at repetitive-claim losses, in the 20-year span from 1978 to 1998, the National Flood Insurance Program paid almost $8 million dollars on 466 claims for 81 repetitive-loss properties in the River Road area in the northern part of the county. In the interior of Jefferson County, 60 claims were paid on 27 repetitive-loss properties at a total cost of approximately $1.2 million. In the former City of Louisville, 31 repetitive-loss claims were made for 14 structures at a cost of less than $500,000.
The statewide experience with repetitive-loss claims should be evaluated to determine what population of flood-prone structures the state adoption of a one-year reset would affect, and the potential additional costs to the program from lowering the reset timeframe to an annual one.
2. Beyond the increase in people that will remain in harm’s way under a one-year reset in the “substantial improvement” standard allowing up to 49% of the value to be spent each year in repair and reconstruction rather than elevating the structure to avoid future risk and losses, the state should evaluate the economic impact of the change on other homeowners required to carry flood insurance. Will the premiums on those federal flood insurance policies be increased as a result of increased payout of repetitive-loss claims for a now-enlarged subset of structures that have suffered repeated serious flood damage and which would, under the 1-year reset, be able to continue to avoid indefinitely the elevation requirement? Will those premiums be increased due to any change in rating from the Federal Emergency Management Agency (FEMA), the agency that oversees flood protection programs and manages the flood insurance program?
Each of these issues deserves careful evaluation before the state moves forward to shorten the period for cumulating investment in the alteration, repair or reconstruction of flood-prone structures in a manner that will leave more persons and properties at risk and potentially obligate the balance of federal flood insurance policyholders to finance the serial reconstruction of structures that should, as a matter of public safety and policy, be elevated or relocated.
Thank you for your consideration of these concerns.