The National Flood Insurance Program at Fifty: How the Fifth Amendment Takings Doctrine Skews Federal Flood Policy

Abstract

The National Flood Insurance Program (“NFIP”) of 1968 marked its fiftieth anniversary in 2018. Despite the program’s long history, few appreciate that the NFIP was never intended as a permanent federal subsidy for flood-prone properties along rivers and coastlines abandoned as commercially unviable by the private insurance industry. Instead, Congress provided flood insurance at below-cost rates as only an interim solution until state and local governments enacted permanent self-help land-use regulations that would restrict development in risky areas. By encouraging local governments to enact floodplain regulations, Congress intended to shift the costs of development in known flood areas back to those who chose to occupy them, thereby sending a strong signal of danger. But despite its lofty goals, the NFIP has failed miserably: It was more than twenty billion dollars in debt to the U.S. treasury as it turned fifty. At the same time, the nation continues to build in floodplains and to suffer death and devastating property loss from recurrent floods.

What can account for the NFIP’s failings? Although there is extensive literature on the design flaws endemic to the NFIP itself, scant attention has been directed to a pair of external contributors to the program’s ineffectiveness: the regulatory and physical takings doctrines. This Article unpacks the role played by those doctrines in undermining federal flood policy. The modern takings movement was gaining momentum at roughly the same time as the NFIP’s passage, and several of the movement’s often-cited foundational cases took aim at coastal and floodplain development regulations. The conventional justification for the takings doctrine is that it prevents the public from foisting the cost of regulation and government action onto individual property owners. But in the case of coastal and floodplain development, the opposite is often true: The actual or threatened filing of a takings lawsuit can have a costly and chilling impact on regulations, including those encouraged by the NFIP to promote floodplain and coastal safety. As a result, the doctrine has helped to shift the financial costs of risky development to the general public and to make floodplain occupants less safe.

Congress has been well aware of the NFIP’s failings for years and has struggled to come up with a solution that is both politically feasible and financially sustainable. But surprisingly, the national dialogue has ignored the other half of the puzzle — the judicially-created takings doctrine. This Article argues that any durable solution must look at the entire problem and harness the power of both Congress and the courts to send the signal that floodplains are not safe and to create robust incentives for people to stay out of harm’s way.

Keywords: natural resources, flood insurance, land use, regulatory takings, physical takings, environmental

JEL Classification: K11, K32, Q34, Q38