Subsidized flood insurance is one of the many federal programs that is counter to both sound economic policy and sound environmental policy. Congress created the National Flood Insurance Program (NFIP) in 1968 to help homeowners in flood-prone areas purchase insurance. The FEMA-run program covers floods from river surges and storms on the seacoasts.
In recent years, the NFIP has gone hugely into debt and it may be bailed-out by taxpayers at some point. The program has encouraged people to build homes in areas that are too hazardous to safely occupy. It has encouraged towns to expand development in flood-prone areas. And the program undermines constitutional federalism by prompting the federal government to reach its regulatory tentacles into local zoning issues.
Read more at http://www.cato.org/blog/folly-federal-flood-insurance
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