Elections, real estate, and the limits of presidential power

Election-year promises are a wonderful thing but it’s best to take such pledges with a grain of salt. The reason is not that politicians lack plans and positions, but rather that election vows often conflict with hard-wired programs that are difficult if-not-impossible to remove.

A presidential candidate can make brave statements but in many cases a Commander-in-Chief is stuck with Washington realities, including the reality that presidential power only goes so far. The House, the Senate, the court system, lobbyists, public sentiment, bureaucrats, and tradition can all stand in the way of new programs and policies.

Consider the National Flood Insurance Program (NFIP). It’s a well-intentioned program, covering nearly 5.2 million properties in 2018. It helps communities across the country, but premiums have not covered costs since 2004. That’s a nice way of saying that if it were a private business it would be entirely bankrupt. When the program has a loss it borrows money from the US Treasury to cover claims but by 2017 the amount owed was so huge that it would obviously never be repaid. The solution? In 2017 the government forgave $16 billion in NFIP debt.

It’s the last point that’s a problem for the winner of this year’s presidential election. The NFIP loses money year after year. That’s bad for an insurance program and not good for the federal budget. But regardless of losses, the NFIP is politically untouchable. That’s because properties worth trillions of dollars cannot qualify for mortgage financing without flood insurance and the people who own such properties vote.

It’s not just that the federal flood insurance program loses money, the true miracle is the magnitude of its losses. In fiscal 2018, according to the Congressional Budget Office, “the program’s costs totaled 220 percent of premiums and other receipts. Historically, actual expenses for claims (not including other program expenses) have varied widely from year to year, ranging from less than 10 percent to almost 900 percent of the premiums collected. CBO estimates that annual expenses will, on average, exceed annual income.”

What’s happened is that a well-intended and useful program has grown over time. Unfortunately, the presumptions in place when the program was first established in 1968 are no longer valid. Real estate development combined with climate change have created large areas where structures should not be built but are already in place. The classic example is the property near Baton Rouge that’s had federal flood insurance claims on 40 separate occasions.

The reason to bring up the flood insurance program is to better understand how Washington works. Yes, elections are important and presidential elections are the most important of all, but regardless of campaign promises some things will not change easily, not change quickly, or not change at all.

Instead, Washington has a well-managed system of purposeful erosion. No elected official will want to publicly abandon federal flood insurance but over time the program will quietly evolve. Premiums will rise, multiple claims will be limited, flood maps will be modified, and in a growing number of cases owners will be bought out with federal funds. In the end politicians will still be able to say they support the NFIP, not mentioning that while the program name is unchanged the program itself has mutated. There’s no doubt that US presidents have enormous power but their ability to shape events is surprisingly limited. Presidents can’t set interest rates, they can’t force homeowners to move in an effort to increase listing inventory, and for 2021 and beyond the government will have a flood insurance program in place that adds to the deficit every year but also assures that more than five million homes can get mortgage financing. For Washington that’s a great outcome, an example of how the world really works regardless of who is in office

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