Prepared Testimony of Ralph DeGennaro, Executive Director
Taxpayers for Common Sense before the Senate Environment and Public Works Committee
Hearing on S. 2470, to exemption Pumpkin Key, FL from the Coastal Barrier Resources System (CBRS)
September 22, 1998

Good morning Mr. Chairman and members of the Committee. My name is Ralph DeGennaro and I am Executive Director of Taxpayers for Common Sense, which I co-founded in 1995. Taxpayers for Common Sense opposes S. 2470.

TCS is 501-C3, non-profit organization dedicated to cutting wasteful government spending and subsidies and maintaining a balanced budget. We are a politically independent organization that seeks to reach out to taxpayers of all political beliefs in working towards a government that costs less, makes more sense and inspires more trust. Taxpayers for Common Sense receives no government grants or contracts.

Mr. Chairman, I would like to thank you for the opportunity to testify today. Also, I would like to thank Senator Graham for adhering to the process by introducing S. 2470 as a free-standing bill instead of seeking to attach it as a rider on unrelated legislation.

By undermining personal responsibility, S. 2470 mocks taxpayer compassion displayed in times of disaster

Fundamentally, Taxpayers for Common Sense believes that Americans want their government to be soft-hearted in times of disaster and hard-headed before disaster strikes. In 1993, Hurricane Andrew decimated South Florida and parts of the Florida Keys, causing $25 billion in damage. But taxpayers from across the nation were there for their fellow Americans in Florida. Hundreds of millions of taxpayer dollars were spent on an emergency basis to ameliorate Florida's immediate suffering and to give its people the means to get their state back on its feet as quickly as possible. Inevitably, Florida and other states will suffer such disasters again. When they do, TCS believes most Americans want Congress to open its heart and wallet to aid stricken citizens.

But when the storm has passed and there is time to think clearly, American taxpayers demand that their fellow citizens use common sense. People should take responsibility for their own actions and avoid living in harm's way to reduce the likelihood of needless deaths and disaster payments. That is why Taxpayers for Common Sense opposes S. 2470. This bill forces federal taxpayers to buy front-row tickets to a hurricane. Worst of all, S. 2470 makes it more likely that unsuspecting homeowners will die, lulled by the good housekeeping seal of approval symbolized by federal subsidies. This bill mocks the compassion that Americans showed in 1993.

S. 2470 forces hardworking taxpayers to subsidize luxury homes

Even if subsidizing certain coastal developments made sense, Pumpkin Key would not be on the list. Anyone who can afford to buy a home there does not need taxpayer handouts. Read the promotional brochures. The bill asks federal taxpayers to subsidize the development of a dozen luxury homes on a secluded island. Reportedly, some homeowners will arrive by helicopters landing on the tennis courts.

S. 2470 further dismantles the Coastal Barrier Resources System that protects against developers who gamble with taxpayer money

President Reagan signed the Coastal Barner Resources Act (CBRA) in 1982, in part in order to reduce taxpayer bailouts of resort developers up and down the Eastern seaboard. Since 1996, Congress has slowly begun dismantling the CBRA piece by piece via special interest exemptions. S. 2470, designed to exempt Pumpkin Key, is no exception. It would simply continue the dismantling of a law that protects taxpayers and encourage further exemptions. That is the wrong message for Congress to send.

The CBRA authorized the establishment of the Coastal Barrier Resources System (CBRS) - a designation that does not allow the taxpayer subsidized development of undeveloped coastline as defined by the CBRA. Before the establishment of the CBRS, taxpayers paid millions each year to bail out private developers that invested in risky coastline development. The CBRA was passed in an effort to curtail the spiraling costs to taxpayers. The CBRS does not prohibit private development - it simply states that developers are prohibited from receiving federal subsidies for new, private construction on undeveloped coastal barriers. In other words, the System prevents the distribution of federal funds, such as those in the National Flood Insurance Program (NFIP), to support construction.

Developers are then free to choose not to build in risky areas, or to pay market rates for private insurance if they choose to gamble and develop vulnerable areas within the system. TCS understands that obtaining private insurance for development on coastal flood plains and barrier systems is difficult since the risk for insurers is so high. But, if private developers are unwilling to risk their own money, should they be allowed to risk taxpayers' money instead? Why should taxpayers be forced to pay for others' risky investments?

The exemption of Pumpkin Key, and other coastal areas like it, undermines the very reason the CBRS was established. It has been proven that the availability of flood insurance under the National Flood Insurance Program (NFIP), along with other federal subsidies, encourages development along vulnerable areas of America's coasts. The U.S. GAO concluded in 1982 that the NFIP acts as a "financial safety net" for developers. In 1988, the Department of the Interior (DOI) concluded that federal subsidies are one of the key reasons why coasts have become so heavily developed since World War II. Additionally, a report prepared for the DOI concluded that every developed acre of coast costs $82,000 in federal subsidies.

The biggest taxpayer gamble on the coast is the NFIP, which risks hundreds of million in taxpayer dollars every year, depending on the damage caused by natural disasters over that year.

The NFIP has a terrible financial track record with a debt of over $900 million to the U.S. Treasury. In 1993, the NFIP had to borrow money from the treasury in order to pay claims from the Midwest Floods and Hurricane Andrew. In 1996, the NFIP had to borrow $680 million from taxpayers in order to pay insurance claims prior to Hurricane Fran. This hurricane then caused another $4 billion in damage, part of it on flood insurance claims. The reason for the taxpayer bailouts is simple - the dollar amount the Program collects on policies is far below the dollar amount these policies are actually worth. In other words, the NFIP has over $325 billion worth of policies in effect, yet has only about $500 million in the Flood Insurance Fund for payment of claims. When no flooding or natural disasters occur in a given year, the Program has about $500 million in reserve. When there is flooding, however, the Program immediately goes into the red.

Taxpayers for Common Sense urges the Committee to protect unsuspecting homebuyers and taxpayers by rejecting S. 2470. Thank you very much.