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Statement of Need: HUD's experience in the wake of Hurricane Sandy is that unless structures in floodplains are properly designed, constructed and elevated, they may not withstand future severe flooding events. Building to FEMA's best available data plus one foot will reduce property damage, economic loss, and loss of life, and will also benefit homeowners by reducing flood insurance rates. The best available data plus one foot standard proposed by this rule was made after considering the last ten years of FEMA flood mitigation efforts and provides, in HUD's view, the best assessment of risk. This higher elevation provides an extra buffer of one foot above the best available data to ensure the long term resilience of communities. It also takes into account projected sea level rise, which is not considered in current FEMA maps and flood insurance costs.

Summary of the Legal Basis: Executive Order 11988 (E.O. 11988) entitled, "Floodplain Management" issued May 24, 1977 (published on May 25, 1977 at 42 FR 26951) requires Federal agencies to avoid to the extent possible the long and short-term adverse impacts associated with the occupancy and modification of floodplains and to avoid direct and indirect support of floodplain development wherever there is a practicable alternative. A floodplain refers to the lowland and relatively flat areas adjoining inland and coastal waters including flood-prone areas of offshore islands that, at a minimum, are subject to a one percent or greater chance of flooding in any given year (often referred to as the "100-year" flood or "base flood"). Consistent with E.O. 11988, when no practicable alternative exists to floodplain development, HUD requires the design or modification of the proposed action to minimize potential adverse impact to and from the floodplain. HUD has implemented E.O. 11988 and its 8 step review process through regulations at 24 CFR part 55.

Alternatives: Two alternatives exist that would produce the same effect as the current rule, an actuarially fair flood insurance program and complete prohibition of new construction or substantial rehabilitation in areas below an equivalent flood plain level, which as mentioned below in the discussion of an anticipated costs and benefits, averages to approximately the 250-year level. The actuarially fair flood insurance program would need to be established by legislation and the complete prohibition of new construction or substantial rehabilitation in areas below and equivalent flood plain level is action that would likely need to be taken by State and/or local jurisdictions and likely not to occur. Therefore this rule is undertaken to help ensure that HUD funds are used prudently in connection with any new construction or substantial rehabilitation in areas below flood plain level.

Anticipated Costs and Benefits: Increasing the base elevation of a structure in a floodplain will increase the construction cost and decrease the annual flood insurance premium. The additional cost for each additional foot of vertical elevation varies from 0.3 percent - 0.5 percent of the base building cost. The construction cost for multifamily properties averages $100,000 per unit for new construction. The average size of HUD-assisted properties in 100-year floodplains is approximately 100 units. [2] Thus, construction costs per property total approximately $10.0 million. Applying the midpoint of the cost range stated above, 0.4 percent, construction costs would increase by $40,000 per property. HUD estimates that approximately 75 properties are placed in service annually in 100-year floodplains and therefore would be affected by this rule. It is not clear, however, how many of these are built to BFE+1, so these estimates should be considered an upper bound. The aggregate annual cost of adding this increase to an owners mortgage at 3.5 percent, would increase costs $3.264 million assuming a 3 percent discount rate and $2.146 million assuming a 7 percent discount rate. The benefits of this rule include decreased flood insurance premiums for property owners and decreased costs to tenants to avoided search costs for temporary replacement housing and lost wages. The annual premium for the maximum multifamily coverage of $250,000 at the 100-year flood level is $1,359. This decreases to $660 at one foot above the 100-year flood plain level for an annual savings of $699. Assuming a 30-year useful life and returns to these savings to the owner of 3.5 percent annually, the discounted savings for a property totals $23,303, and $1.748 million in aggregate assuming a 3 percent discount rate, and $13,962 per property or $1.047 million in aggregate assuming a 7 percent discount rate. The significant benefits also accrue to tenants who avoid costs of moving from a flooded property. The family cost of moving a two-bedroom apartment costs approximately $800 plus lost wages. This analysis uses the national median hourly wage reported by BLS of $16.71. If an affected households' wage earners are unable to work for a combined 40 hours each due to a flood-related apartment search and move, a family would lose $668. Combined, a flood would cost each tenant $1,468. There is a 1 percent chance each year that a 100-year flood will occur. Increasing the base elevation by one foot would place the building, on average, to a 250-year flood plane, which has a 0.4 percent probability of occurring each year. Thus, this rule decreases the annual risk by 0.6 percent. The discounted value of decreased expected tenant costs is $8.81 per tenant ($1,468 * 0.6%). The discounted 30-year value of these avoided costs is $178 per tenant assuming a 3 percent discount rate and $117 per tenant assuming a 7 percent discount rate. Aggregating over 100 tenants per property and 75 properties, the total benefit to tenants is $1.334 million assuming a 3 percent discount rate and $0.877 million assuming a 7 percent discount rate. There are also unvalued benefits to tenants of avoiding relocation. Being forced to relocate on short notice creates considerable stress and uncertainty for families. Further, some families may not be able to find affordable housing in their immediate area and will be forced to move far, sometimes out of state. Long distance moves removes a family from their local social network leads and adds additional stress not only on adults, but also on children who may be forced to enroll in difference schools. Finally, this rule also eliminates renovations and replacements that are paid for by FEMA insurance claims. Flood damage could require various internal renovations and replacement of necessary building utility systems, including electrical and heating systems. Although flood insurance covers $250,000, this analysis assumes approximately $50,000 in damage per property. This damage represents a cost to society that would otherwise not have occurred in the presence of actuarially fair insurance rates. The discounted value of this cost for 100 properties totals $0.454 million assuming a 3 percent discount rate and $0.299 million assuming a 7 percent discount. Valued benefits of this rule total $3.536 million assuming a 3 percent discount rate and $2.223 million assuming a 7 percent discount.

Risks: This rule poses no risk to public health, safety, or the environment.