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As communities begin to recover from the devastating effects of Hurricane Sandy, HUD has determined that it is important to recognize lessons learned to employ mitigation actions that ensure that structures located in floodplains are built or rebuilt stronger, safer, and less vulnerable to future flooding events. This commitment to resiliency is now required of all agencies that use federal funds for construction under Executive Order 13690 (Establishing a Federal Flood Risk Management Standard) and the associated "Guidelines for Implementing Executive Order 11988 (Floodplain Management) and Executive Order 13690."

 Based on Executive Order 13690 and the Guidelines, this proposed rule would require, as part of the decisionmaking process established to ensure compliance with Executive Order 11988 (Floodplain Management) that new construction or substantial improvement in a floodplain be elevated or floodproofed 2 feet above the base flood elevation for non-critical actions and 3 feet above the base flood elevation for critical actions based on the Federal Emergency Management Agency's best available data. This rule also proposes to revise a categorical exclusion available when HUD performs the environmental review by making it consistent with changes to a similar categorical exclusion that is available to HUD grantees or other responsible entities when they perform the environmental review. The rule is also part of HUD's commitment under the President's Climate Action plan.

Statement of Need:

This rule revises HUD’s floodplain management regulations in response to Executive Order 13690 and recommendations of the Mitigation Framework Leadership Group (MitFLG). Executive Order 13690, Establishing a Federal Flood Risk Management Standard and a Process for Further Soliciting and Considering Stakeholder Input, called for a new floodplain standard established with stakeholder input.  In addition to addressing risks identified by MitFLG associated with the predicted sea level rise, the standards presented in this rule also address a market failure of information regarding flood risk and moral hazard associated with flood insurance and federal disaster assistance.  HUD is promulgating these new standards, which it must do through rulemaking, in order to protect HUD’s investments and ensure uninterrupted provision of affordable housing.

Summary of the Legal Basis:

Executive Order 13690 directed Federal agencies to avoid, to the extent possible, adverse impacts associated with floodplain development. Based on evidence from the National Climate Assessment and the Intergovernmental Panel on Climate Change, MitFLG, consisting of representatives from various federal agencies, proposed the establishment of the Federal Flood Risk Management Standard (FFRMS). These standards, at least two feet of freeboard above base flood elevation for non-critical actions and three feet of freeboard for critical actions, address the Executive Order’s directive of reducing adverse impact development in floodplains which, as many studies indicate, are expanding fairly rapidly.  The explicit standards provided in this rule are needed because developers, homeowners and renters do not fully internalize the risk and costs of potential flooding.  There is evidence that many homeowners are either not fully aware of the risk of a flood occurring or that they discount the cost of a flood if it occurs.  In some cases, owners simply underestimate the risk of flooding.

Alternatives:

In developing new floodplain management standards, HUD considered several alternative approaches to establishing the standard: climate-informed science approach (CISA); freeboard value approach (FVA); and the 0.2 percent annual chance flood approach (0.2PFA). HUD chose the FVA over the CISA and 0.2PFA for a variety of reasons.  First, the FVA can be applied consistently to any area participating in the NFIP.  The FVA can be calculated using existing flood maps.  This is not true for the CISA standard unless HUD were to establish criteria for every community regarding the application of particular climate and greenhouse gas scenarios and associated impacts.  Rather than requiring this level of review and analysis, HUD chose the more direct FVA.  Second, the two alternative approaches to FVA require expertise that may not be available to all communities.  The 0.2 Percent Flood is not mapped in all communities and requires a significant degree of expertise to map over an area or for an individual site.  The same is also true for the CISA standard, which requires not just historical analysis but a greater anticipation of trends and future conditions.  Third, HUD determined that it is not practicable to establish the CISA or the 0.2 Percent Flood for all projects.  HUD funds or assists tens of thousands of small projects each year.  For example, repaving a road or rehabilitating a single family home may not necessitate the extra amounts of cost required by the CISA and 0.2 Percent Flood approaches.  Fourth, many states and communities already have success applying a freeboard approach to floodplains.  Due to the familiarity that many communities have with freeboard, the FVA was seen as a very practical approach with documented history of application. 

In addition, HUD, as part of MitFLG working group, considered varying levels of elevation above base flood elevation, specifically 1, 2 and 3 feet above BFE. Based on expected sea level rise and the cost of elevation, HUD is providing the standard recommended by MitFLG, which requires at least 2 feet above freeboard, or for critical actions, at least 3 feet above freeboard.

Anticipated Costs and Benefits:

The standards provided under this rule, requiring at least two feet of freeboard above base flood elevation, will increase the construction cost HUD’s assisted and insured new construction and substantially improved properties located in the 1 percent annual chance floodplain. This rule amends HUD’s current standard which requires elevation to at least the base flood elevation.  Thus, the elevation standards are not new, but rather revised to an increased height.  In addition, 20 states, plus the District of Columbia and Puerto Rico, already require elevation exceeding HUD’s current standard of elevation to the base flood level (BFE+0).  Further, four states - Indiana, Montana, New York and Wisconsin - already require residential structures elevated with a minimum of at least two of freeboard (BFE+2).  Thus, the cost of compliance in these states would be less than those that have no minimum elevation requirements in the floodplain.

Developers receiving HUD assistance who are not currently building to the proposed standard of 2 feet above base flood elevation (BFE+2) can meet the proposed standards by either elevating the lowest floor of the structure or by floodproofing to the new standard and limiting the first floor to non-residential uses. Alternatively, developers could choose to locate outside of the floodplain and the affected horizontal expansion, or reduce substantial improvement projects to less than 50 percent of the market or pre-disaster value of the structure, which would no longer classify the project as substantial.

            The standards to be provide in this rule are intended to protect HUD-assisted and insured structures and the owners and tenants in these units.  Thus, the benefits of the rule include reduced building damage and decreased costs to tenants temporarily displaced due to flooding, including avoided search costs for temporary replacement housing and lost wages.  The annual reduction in insurance premiums provides an adequate measure of the reduction in expected damages, assuming that the NFIP rates are calculated in order to maintain a non-negative balance. In this case, the premiums for catastrophic insurance would be slightly higher than, but similar to, the expected value of the claim to pay for administrative costs. 

HUD’s regulatory impact analysis published with its September 2016 proposed rule more fully addresses the costs and benefits of this rulemaking, as of the proposed rulemaking stage.

Risks:

While the rule addresses a rule, the rule poses no risk to public health, safety, or the environment.