Temptations of the rich

The Lord's Prayer declares, "Lead us not into temptation," but that's exactly what the National Flood Insurance Program has done for some Americans of above-average income, and-in our new hurricane season-may do again, unless Congress acts quickly.

Example: the experience of ABC's John Stossel. He writes that he "built a beach house on the edge of the ocean on Long Island. It was an absurd place to build a house. One block down the road was a desert-like wasteland where a dozen houses had eroded away a few years earlier. Still, my eager-for-the-business architect said, 'Why not build? If the ocean destroys your house, the government will pay for a new one.'"

Stossel reports, "The contractor was right. . . . During a fairly ordinary storm, the ocean knocked down my government-approved pilings and ate my house . . . financially I made out just fine. Federal flood insurance paid for the house-and its contents." Others have said the same: The feds encourage building in storm-prone beach areas where private insurers rightly fear to tread.

Take the case of North Carolina's Betty Minchew, whose oceanfront rental house blew away during Hurricane Hugo in 1989. She used cheap federal flood insurance to rebuild her house and then build two other beachfront rental houses in the same hazardous area, not caring that they were also idols for destruction. She said, "Hugo was good to me"-and when hurricanes are good to people economically, something is awry.

Not everyone who owns oceanfront property is wealthy, but many in prime areas are-and for them, federal flood insurance is welfare for the rich. Once-bitten private insurers, twice shy, would not keep paying for buildings in risky locations, but the federal government enables repeated rebuilding.

That may change, though. The House of Representatives has passed a bill intended to eliminate or reduce subsidies for vacation homes and nonresidential properties, with the goal of bringing annual premiums for those properties more in line with market rates. Senate action is expected, and the trick will be reconciling the two bills.

This is really a test to see whether a GOP Congress that reformed welfare for the poor will also reform welfare for the rich. The parallels are evident:

Welfare for the poor brought about multi-generational dependency on government, and welfare for the rich also taught that irresponsible behavior would lead to a government stipend.

The analogy to welfare for the poor stands in one other way as well: Many have said, with considerable evidence, that a poor teenager can escape the welfare trap by following a simple three-part strategy: Graduate from high school; avoid drugs; don't get pregnant. Affluent owners of oceanfront property can avoid relying on welfare for the rich by following three rules: Don't build unless you can afford to pay high insurance rates or lose it all; build a simple beach structure rather than a palace; if you do build, take advantage of improved (but much more costly) construction advances that lower risk.

The poor, especially during the past decade of welfare reform, have had more incentive to leave the dole than the government-insured rich have had-but that may change. New legislation, I hope, will stop enabling people to love a beachfront home and lose it, then love and lose it again and again, on the government dime. From a federal budgetary standpoint, it is not better to have materially loved and lost than never to have loved at all.

Repetitive flood insurance losses have also displayed the difficulty that officials within a democracy have in saying no. Private insurance companies require significant premium increases on properties at risk, or require property owners to take preventive measures as a condition of writing coverage. If no changes occur, companies cancel policies-but governments rarely have the will to do that.

Pay off once, shame on the weather or maybe on the builder; pay off twice or even six times, shame on those who write enabling laws and regulations. The solution: Those who build or buy in hazardous areas should pay the market cost of insurance. We should not encourage reckless activities among the poor and thus lead them into temptation, and we should not lure the rich either. Let's hope Congress understands that.