Xerxes Wilson / Houma Courier
Louisiana plans to sue the federal government to delay or block potentially unaffordable price increases tied to reform of the National Flood Insurance Program.
"We are going to file suit," Louisiana Insurance Commissioner James Donelon said Thursday. "The question now being decided by the lawyers we have hired is whether we file in the pending Mississippi action or a separate action in Louisiana."
Provisions of the Biggert-Waters Flood Insurance Reform Act coupled with new FEMA elevation maps have resulted in some residents of coastal parishes facing premiums topping $20,000 a year. Local government leaders fear plummeting home values will wreck coastal economies like Terrebonne and Lafourche.
Mississippi's Insurance Department filed suit against FEMA and the Department of Homeland Security two weeks ago asking a federal court to block cost increases until Congress has reviewed an affordability study mandated by the law.
Last month, FEMA Administrator Craig Fugate told a congressional committee the affordability study isn't legally tied to the implementation of new rates so the reforms can only be delayed through further congressional action. He added the study could be two years from completion as some rate changes began this year.
"Let me put my cards on the table, I need your help. I have not found, my attorneys have not found, a way," Fugate said.
Donelon said a more "viable challenge" is to argue the potential devaluation of homes due to the reforms is a "de facto taking of people's property value" without due process.
If that argument can't be tied to Mississippi's challenge, he said, the state will file a separate lawsuit in Louisiana. Louisiana Attorney General Buddy Caldwell has given a verbal blessing to the effort, Donelon said.
New Orleans law firms Jones Walker and Adams & Reese have explored legal challenges to the law for the economic development organization GNO Inc. Donelon said he is seeking state approval to hire the firms.
Louisiana is the third state government to back a legal challenge to the reforms.
On Thursday, Republican Gov. Rick Scott of Florida voiced his backing of Mississippi's challenge with a supporting brief rather than filing a separate suit.
More than 2 million homes are insured through the National Flood Insurance program in Florida. Louisiana has more than 480,000 homes insured through the program.
The Biggert-Waters Act was passed with the stated goal reining in the National Flood Insurance Program's estimated $20 billion debt.
It uses a combination of reforms, including removing federal taxpayer subsidies on buildings built before the first flood maps were accepted by the local government. FEMA notes only 20 percent of policies are subsidized.
The removal of rate grandfathering will likely have a more widespread effect. All policyholders will eventually see costs changes as FEMA updates the flood maps used to determine insurance costs and the minimum elevation a structure can be built to.
Historically, owners were allowed to keep their insurance bill tied to the flood map in use when their home or business was built. Reforms remove this so-called "grandfathering" and link costs to the elevation dictated by new flood maps as they are accepted by local government.
In many places, new maps will raise FEMA's prescribed elevations for homes, meaning some residents may find their homes below the newly mandated elevations. Structures below that level will pay so-called punitive rates.
Blue "Stop FEMA now" signs dot yards in St. Charles Parish's Bayou Gauche community where residents like Ann Morvant have been quoted rate increases topping 4,000 percent.
"As we all stand here, our homes are worthless so that is how we have come together and joined to fight because we are all literally in the same boat," said Morvant, whose rate would increase from $365 to $16,000 under the newly proposed flood maps.
Flood insurance is required by almost all mortgage agreements in flood zones, and requiring a hefty premium could cause a property's value to drop significantly, local politicians and bankers have said.
Terrebonne Parish President Michel Claudet fears a chain reaction where homeowners lose their largest investment, banks lose their mortgage portfolios, the real estate market freezes, businesses lose employees and the parish's tax collections wither.
Bayou Gauche is already seeing the real estate market sputter and property values dip. Tab Troxler, St. Charles Parish tax assessor, has lowered property values between 18 and 30 percent because of the "untenable" rates and the corresponding lack of real estate activity in Bayou Gauche.
This will likely be a central example in Louisiana's challenge, though Donelon declined to get too specific with the legal argument.
Donelon said he will argue such devaluation caused by the reforms is a "legal taking" of that property value without due process. He likened the argument to one that might arise challenging the government expropriation of a piece of land.
GNO Inc. CEO and President Michael Hecht could not be reached for comment.
Claudet said he still holds out hope for a legislative solution but said the question could reach the highest courts.
"Whatever happens in district court isn't going to stay there," Claudet said. "It will likely go through appeals and perhaps even to the Supreme Court."