Image: Mississippi home
Spencer Platt  /  Getty Images
A home ravaged by Hurricane Katrina is seen in September in D'Iberville, Miss. Many coastal residents had no flood insurance for homes and businesses, making them responsible for financial loss.
By Elizabeth Chuck Reporter
msnbc.com
updated 12/19/2005 7:47:39 PM ET 2005-12-20T00:47:39

A Senate vote expected this week could bring unprecedented government aid to Gulf Coast residents who did not purchase flood insurance because they lived outside high-risk areas, but whose homes were ravaged by Hurricane Katrina nevertheless.

Residents whose homes were in designated federal floodplains were required to buy flood insurance ahead of Katrina, which struck the Gulf Coast on Aug. 29. People living outside those zones were not required to purchase flood insurance, but could have done so if they had wished.

Now thousands of uninsured homeowners are facing the possibility of foreclosures because the storm destroyed or damaged their houses.

The vote, which may come as early as Wednesday, could bring as much as $11.5 billion to these uninsured flood victims in Mississippi and Louisiana.

Adam Sharp, a spokesman for Sen. Mary Landrieu, D-La., said this is the first time the government has done this.

“I believe it’s unprecedented, but it’s also an unprecedented disaster,” he said. “The homes in question did not have flood insurance. The reason is because the federal government told them they didn’t need it.” The government, Sharp said, has a responsibility to pay for its mistake.

The relief still faces serious hurdles in the Senate. It was tacked onto a broad $453 billion defense budget bill. That bill also includes several unrelated measures that are controversial and could bring down the whole bill, including authorization to drill for oil in the Arctic National Wildlife Refuge in Alaska and compromise language for a ban on cruel treatment of terrorism detainees.

Most Democrats oppose the ANWR provision, but it has support from both Republicans and Democrats in Louisiana: If drilling is approved, it would bring federal oil revenues to the Gulf Coast.

“Cutting ANWR would mean cutting about $6 billion in hurricane protection and coastal restoration in Louisiana,” Sharp said.

The pending relief plan, led by Sen. Thad Cochran, R-Miss., would set aside $11.5 billion in the form of Community Development Block Grants to the affected states.

The grants give the states considerable flexibility on how to use them. Mississippi officials have said they plan to use the grants to bail out homeowners who didn’t purchase flood insurance because the government didn’t force them to buy it.

Beau Gex, district chief of staff for Rep. Gene Taylor, D-Miss., estimated 35,000 homes in his state fall under this category. Mississippi is expected to receive about $5 billion of the grant.

Up to $150,000 apiece
That would mean homeowners could receive up to $150,000 for repairing or replacing their flood-ruined homes despite not having flood insurance.

Louisiana officials say they intend to use at least a portion of their grant money for the same purpose, Sen. Landrieu's spokeperson said some of the money also would likely be used to rebuild damaged infrastructure.

“My expectation is that the state government will use it for a variety of purposes toward rebuilding communities,” including housing, vehicles, hospitals and schools, he said. “In Louisiana, the damage to core infrastructure was even more disproportionately affected than in Mississippi, so the need is much greater for the wider use of funds.”

Andy Kopplin, executive director of the governor-appointed Louisiana Recovery Authority, said he regretted that Louisiana cannot give more to flood victims.

“Unfortunately, we have nearly two-and-a-half times more homeowners without flood insurance who were out of the floodplain and lost their houses than in Mississippi,” Kopplin said, adding that more than 70,000 homeowners in Louisiana were affected, while in Mississippi fewer than 30,000 were.

“We are evaluating how much we can do to help them,” he said.

The biggest chunk of the grant would go toward housing, the authority’s spokeswoman, Catherine Heitman, said.

The legislation states that no more than 54 percent of the Community Development Block Grant money can go to either of the two states, Jenny Manley, spokesperson for Sen. Cochran, said.

Victims facing financial crisis
The proposal to bail out homeowners without flood insurance would help thousands of storm victims currently facing the possibility of foreclosures. Some banks in the Gulf Coast have been lenient on late mortgage payments but have not decided when they will stop making concessions.

According to data released by the Census Bureau and FEMA published in The New York Times, the percentage of homes with flood insurance in counties affected by Katrina varied. In Louisiana, it ranged from 57.7 percent to 7 percent of people in affected areas; in Mississippi, 23.4 percent to 10.4 percent; and in Alabama, 23.5 percent in 3.9 percent.

Mississippi Gov. Haley Barbour hailed the proposed package as a success.

“This will boost the prospects of recovery for thousands of families who had homeowners insurance, but not flood insurance, and lost their homes to the storm surge,” he said in a press release after the House passed the bill Monday morning. “... I am encouraged Congress will soon pass this package.”

Landrieu said she hopes the bill will pass in time to deliver the grants as the holidays approach. “The Community Development Block Grants will allow us to use the money that FEMA has been sitting on for nearly three months on programs that really work so we can help the people of the Gulf Coast rebuild,” she said.

Disincentive to buy insurance?
If the Senate agrees to the bill, it would be considered a huge victory for Barbour and  lawmakers, including Cochran and Taylor, who sought federal aid for the uninsured.

Cochran argued that Katrina was an “extraordinary event” for which victims deserved the additional help.

Only flood victims who own their homes — not renters — would be eligible for grant assistance, officials said. Any FEMA payments the homeowners have already received would be deducted from the maximum $150,000 they can be awarded.

Bob Hartwig, senior vice president and chief economist with the non-profit Insurance Information Institute, said such an unprecedented bailout by the government would almost certainly make people reconsider buying flood insurance in the future.

“The more aid people feel they're going to get after a disaster, the more disincentive there is to buy insurance. Why buy it if you can get it retroactively?” Hartwig said.

Insurers being sued
The same disincentive, he said, comes from lawsuits currently being filed by people who did not have flood insurance but are suing insurers, arguing that insurance should cover the water damage from a wind-driven storm surge. If successful, Hartwig believes government aid and suing will be seen as alternatives to purchasing flood insurance.

“It does serious damage to the National Flood Insurance Program, which is a federal program, because people would not see the value to it,” Hartwig said. “In reality, many flood victims already have checks in their hands if they had flood insurance. There's no good substitute for actual insurance.”

But Ed Pasterick, a senior adviser for the National Flood Insurance Program, which is administered by FEMA, disagreed.

“I think people are viewing Katrina as an exceptional storm in the sense that it is out of proportion with anything before,” he said. “Therefore it's hard to draw long-term conclusions. I think it might not be quite as negative an impact (as predicted).”

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