Senator WILLIAMS. We certainly appreciate your coming over and testifying on this, and I know that, with your experience in Louisiana, you are truly an authority; and I also know that this is a busy day in the House of Representatives.

Mr. BOGGS. I would just like to emphasize, Senator, that I think you and your committee are doing a great service in holding these hearings, and say to you that there is similarly an interest in the House of Representatives, as demonstrated by the large number of Members who have sponsored this legislation.

Senator WILLIAMS. Well, all I can say is let us pass it. You are in a position to do that. Thanks.

Mr. BOGGS. Thank you.

Senator WILLIAMS. Mr. Robert C. Wood, Under Secretary, Department of Housing and Urban Development, has just flown in to be with us. I do not know what airline you flew with, but you are ahead of time. And you are accompanied by several other witnesses, if you will introduce them, please.

Mr. WOOD. I am accompanied, Mr. Chairman, by Thomas C. McGrath, the General Counsel of the Department, on my immediate left

Senator WILLIAMS. I will pause right there. Former Congressman Thomas McGrath, your General Counsel, is eminently qualified on committee subjects, and certainly this particular one, because he comes from an area that suffered tremendous damages from the March 1962 storm along the Atlantic coast in the State of New Jersey.

Mr. WOOD. He has indicated a keen interest in this subject, Senator, ever since he came to the Department.

I am also accompanied by Mr. Henry Schechter, to my immediate right, who is the Director of the Department's Office of Economic and Market Analysis; and next to him, Mr. Mortimer Kaplan, the Department's principal actuarial expert.

On Mr. McGrath's left is Mr. Otto Meletzke, legislative attorney in the General Counsel's office.

We also have available and present to answer any technical questions within their competence Mr. Howard L. Cook and Mr. Walter G. Sutton, of the Corps of Engineers of the Department of the Army; Mr. Frank Clark, of the Geological Survey of the Department of the Interior; Mr. Bennett Jones, of the Coast and Geodetic Survey; and Mr. Max Kohler, of the Weather Bureau of the Department of Com

merce.

These gentlemen have been good enough to join us from other parts of the executive branch to assist in our presentation of the Department's views on S. 1985.

Senator WILLIAMS. All right, we welcome you all. And I will say I have been through a preliminary discussion with your colleagues. It is a very complex approach to a heretofore overlooked problem and need. Now I am going to sit here and ponder with you. Mr. WOOD. All right.

Senator WILLIAMS. Senator Brooke, I do not believe, has seen these charts that describe the mechanism. The philosophy is easy. This we

have agreed to for 11 years here in the Congress and in the administration. The mechanism is another thing, indeed. I have had a headache for 2 days from going over the preliminary study on this. Mr. WOOD. Would you like me to proceed, Mr. Chairman? Senator WILLIAMS. You may proceed.

Mr. WOOD. What I would like to do is to present the highlights of the formal statement of mine that is available to the committee, discussing first the need for and the public purposes to be served by the national flood insurance program; then the principal provisions of S. 1985; and, finally, indicating how the public-private partnership inherent in this program would operate.

Senator WILLIAMS. Would you pause a moment?

Mr. WOOD. Yes, sir.

Senator WILLIAMS. Can you hear Mr. Wood in the back of the room? We do not have any amplification here.

Mr. WOOD. Well, I will do my best to speak a little louder.

Senator WILLIAMS. If you can sit over here. You are going to come to the charts, anyway.

Mr. WOOD. I would be delighted.

STATEMENT OF ROBERT C. WOOD, UNDER SECRETARY, DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT, ACCOMPANIED BY THOMAS C. McGRATH, GENERAL COUNSEL; R. OTTO MELETZKE, LEGISLATIVE ATTORNEY; MORTIMER KAPLAN, ACTUARIAL EXPERT; AND HENRY SCHECHTER, DIRECTOR OF OFFICE OF ECONOMIC AND MARKET ANALYSIS

Mr. WOOD. Mr. Chairman, Congressman Boggs has already testified to the growing need for flood insurance. The steady expansion of urban populations and other increased requirements for space have prompted a growing tendency to occupy flood plains.

The estimated property losses from floods exceded $100 million in only 1 of the 10 years in the decade ending in 1934. In the decade ending with 1944, the $100 million annual loss figure was exceeded in 6 years. In 8 of the 10 years between 1945 and 1954, and in 7 of the 10 years between 1955 and 1964, flood losses exceeded $100 million. Furthermore, in each of the two most recent decades, there was 1 year in which the estimated property losses from flood damage were about $1 billion, a level which had not been reached in previous decades. In 1964 and 1965 the estimated losses from floods were $652 and $788 million. And, as Congressman Boggs indicated, these figures understate the full economic loss to society resulting from flood damage.

With your permission, Mr. Chairman, I will include as part of the record my formal statement that details these losses, that indicates the specific concerns to Congress in the Pacific Northwest Disaster Relief Act of 1965 and the Southeast Hurricane Disaster Relief Act of 1965. Senator WILLIAMS. Without objection, that will be included.

(The portion of Mr. Wood's prepared statement referred to above, follows:)

When floods strike developed urban areas, regular activities are disrupted, productive capacity is impaired, and strategic transportation facilities cannot be used. Large, uncalculated losses of productivity and income which are not fully reflected in reported flood losses have undoubtedly occurred.

Since 1936 this nation has acknowledged the seriousness of the flood damage problem. In that year we inaugurated a national flood protection policy, and since then the Federal investment in flood protection and prevention through the Corps of Engineers and the Soil Conservation Service has amounted to more than $7 billion. The current rate for such expenditures, according to a Presi dential Task Force on Federal Flood Control Policy, is $500 million per year and is increasing.

Without these flood protection and prevention works, flood losses would undoubtedly be much more severe. But in spite of these measures, each year the homes and household goods of thousands of families are destroyed or damaged by floods.

Over the years, the American National Red Cross has paid out millions of dollars in relief payments available to such families. Below-market interest_rate disaster relief loans by the Small Business Administration and Farmers Home Administration have helped some homeowners to repair or rebuild their properties. In addition to SBA and Farmers Home loans, Federal emergency relief to aid in repair and rehabilitation of private and public structures has been made available through the Office of Emergency Planning, the Corps of Engineers, and the Bureau of Public Roads.

In recent years, the Congress has enacted special assistance measures to help communities and individuals recover from the effects of major disasters. These have included the Pacific Northwest Disaster Relief Act of 1965 and the Southeast Hurricane Disaster Relief Act of 1965, both designed to help victims who suffered flood damage losses. The 1964 Amendments to the Alaska Omnibus Act, following the Alaska earthquake, were designed to deal primarily with damage from the earthquake, but also provided assistance to those in parts of Alaska who suffered related wave wash flood damage.

(The 1964 Amendments to the Alaska Omnibus Act had specific authorizations for Federal expenditures totaling some $80 million and authority for $55 million in appropriations. Although most of the damage was from earthquake, it also involved a great deal of related high wave flood damage. The Pacific Northwest Disaster Relief Act of 1965 authorized additional expenditures of $155 million for non-residential purposes, as well as provisions for special liberal terms on SBA loans to homeowners. The Southeast Hurricane Disaster Relief Act of 1965 authorized appropriations of up to $70 million.) In the Southeast Hurricane Disaster Relief Act, the Congress recognized that direct loans on liberal terms to owners of damaged or destroyed properties were insufficient to relieve the homeowner who had an outstanding mortgage to repay before the disaster occurred. With his home damaged or destroyed he was still obligated to meet his old mortgage payments as well as pay off the new loan needed to repair or replace damaged or destroyed property. That Act, therefore, provided for forgiveness to individual property owners of up to $1,800 in payments due on direct loans made by the Small Business Administration or the Farmers Home Administration. In the aggregate the amount of such forgiveness is about $40 million. In addition to the amounts that do not have to be repaid, the Government must bear the cost of the difference between the 3 percent interest rate on such loans and the higher average interest rate that the Treasury has to pay to borrow money.

Senator WILLIAMS. Do you have statistics about damages to rivers that have recently been flooded; for instance, on the Ohio River from Pittsburgh into West Virginia and on the Missouri River, I believe, into Kansas City? I do not know what the river is, but down in Georgia in the Macon area, there have been recent heavy floods. Are those figures included?

Mr. Wood. Those figures are not included.

Senator WILLIAMS. Can we get those?

Mr. Wood. We will try to supply them for the record.

Senator WILLIAMS. We will have time to include those in the record before we finally consider this as a full Senate matter, and I think the updated figures from those particular areas might be useful. (The additional data submitted to the committee follows:)

PRELIMINARY ESTIMATES OF FLOOD DAMAGE IN 1967 FLOODS 1

Ohio River:

1

West Virginia, Ohio, Indiana, Kentucky: March, $30,000,000-$35,000,000. Athens, Georgia: May, $117,000-$200,000.

Midwest (still going on at last report):

Nebraska, Iowa, South Dakota, Missouri, and Kansas, up to June 27, $80,000,000-$85,000,000.

Boise, Idaho, area: $23,600.

Louisville, Kentucky: May, $40,000.

Mr. WOOD. As a result of these damages, a pattern has been developing of enacting special relief measures to help property owners recover after a natural disaster has occurred. However, long-term, low-interest-rate loans and special relief measures have been inadequate to prevent financial hardship for moderate-income owners of homes that suffer severe damage or destruction. Even the $1,800 in forgiveness loan amounts does not provide adequate relief for a homeowner with a $10,000 outstanding mortgage who must also assume a new mortgage, probably of a larger amount, to rehabilitate a substantially damaged home, or to replace a destroyed home.

Moreover, relief measures for those who suffer flood losses do nothing to encourage wise use of land subject to flooding, or to discourage increased exposure of life and property in such locations.

The Nation has for more than a decade searched for a program which would:

First, permit owners of existing property already located in floodprone areas to share in the cost of occupying these areas, yet protect themselves against flood losses; and, second, make a property owner who wishes to build a new structure in a flood-prone area aware of the risk of flood damage loss and the premium which must be paid to cover such losses on an actuarial basis so that he can then make a rational choice as to whether it is worthwhile for him to locate his residence on flood-prone land.

It has been clear to all that it would be very desirable to apply to this problem the insurance principle of "spreading the risk," so that each owner of a property in a flood-prone area who buys insurance could protect himself against the risk of loss and contribute toward the cost of losses that may occur in particular areas in a given year.

The major problem in the development of an effective flood insurance program under the Federal flood insurance legislation enacted in 1956 was the difficulty of developing a schedule of estimated rates adequate to pay for all claims for probable losses over a reasonable period of years.

The program proposed under the 1956 legislation reflected the belief of competent insurance experts, at that time, that actuarial rates for flood insurance could not be determined. When the Federal Flood Indemnification Administration, established by the 1956 legislation, submitted to the Congress a request for program funds to operate the flood insurance program, it presented a rate structure which did not reflect the variations in risk in different locations in a flood plain. In other words, there was no presentation as to what the actuarial rate would have to be in any particular area in which insurance would be

1 Based on preliminary estimates supplied by the Corps of Engineers and the Weather Bureau.

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made available. Lacking an adequate case as to the actuarial premium required to cover losses, the House Appropriations Committee concluded that there was no adequate basis for the rate schedule proposed by the Federal Flood Indemnification Administration; no way of measuring the Government's contingent liability; and that further study of the feasibility of flood insurance was required. No funds to operate the program were appropriated, and the program became dormant.

Thereafter, as recurring flood damage losses called attention to the need for flood insurance, the Housing and Home Finance Agency (the predecessor of our Department) recommended authorization of a study of the feasibility of an insurance program. The chairman of this subcommittee took the lead in introducing legislation to authorize such a study. In 1965 the Congress, in section 5 of the Southeast Hurricane Disaster Relief Act, approved such a study.

The Secretary of Housing and Urban Development then undertook a comprehensive study of the feasibility of flood insurance. In the conduct of this study, the Corps of Engineers, the Geological Survey, the Soil Conservation Service, the TVA, and other agencies gave invaluable aid.

The hydrological and flood damage data compiled and analyzed by these agencies made it possible to establish actuarial rates for different flood risk zones in a number of areas representative of different types of flood perils. Preliminary results of a special survey of residents in communities that had experienced floods indicated that many people, particularly those with mortgaged homes, would be interested in purchasing flood insurance. With these and other findings, the Secretary of HUD was able to say in his report to the President last August that "flood insurance is both feasible and can promote the public interest."

The President transmitted the report to the Congress, recommended it for thorough review by interested groups throughout the Nation, and instructed interested Federal departments and agencies to give the report intensive and careful review so that detailed proposals, including appropriate legislation, might be presented to the Congress.

Federal agencies and private insurance groups have worked together as the matter of insurance was studied and the legislative proposal which is before you took shape. Especially important, the great majority of members of the private insurance industry have accepted the findings of the report that actuarial rates could be established and that flood insurance was feasible. Representatives of the various insurance industry groups indicate a willingless to participate with the Government in a program to provide flood insurance-not just in the role of fiscal agents-but on a risk-sharing basis, including the commitment of capital funds to absorb losses up to a specified limit.

Industry acceptance of a national flood insurance program will permit utilization of private industry facilities for insurance sales and services to the maximum extent possible. A public-private partnership of the sort envisioned by this bill will avoid the duplication of facilities which are required to run a full insurance program. That partnership should result in economies for the Federal Government while permitting fair return to private industry for services rendered and risk assumed.