[Federal Register: October 31, 2007 (Volume 72, Number 210)] [Rules and Regulations] [Page 61719-61750] From the Federal Register Online via GPO Access [wais.access.gpo.gov] [DOCID:fr31oc07-21] [[Page 61719]] ----------------------------------------------------------------------- Part II Department of Homeland Security ----------------------------------------------------------------------- Federal Emergency Management Agency ----------------------------------------------------------------------- 44 CFR Parts 59, 61, 78, et al. Flood Mitigation Grants and Hazard Mitigation Planning; Interim Rule [[Page 61720]] ----------------------------------------------------------------------- DEPARTMENT OF HOMELAND SECURITY Federal Emergency Management Agency 44 CFR Parts 59, 61, 78, 79, 80, 201 and 206 [Docket ID FEMA-2006-0010] RIN 1660-AA36 Flood Mitigation Grants and Hazard Mitigation Planning AGENCY: Federal Emergency Management Agency, DHS. ACTION: Interim rule. ----------------------------------------------------------------------- SUMMARY: This interim rule implements certain provisions of the Bunning-Bereuter-Blumenauer Flood Insurance Reform Act of 2004 to provide new incentives for States and communities to mitigate the effects of flood damage to severe repetitive loss properties by creating the Severe Repetitive Loss program (SRL), and through reduced cost-share requirements in the existing Flood Mitigation Assistance program (FMA). In addition, the rule ensures that the FMA planning requirements are consistent with other applicable regulations, and streamlines the planning requirements for Indian tribal governments. It also describes requirements for the acquisition of property for open space with mitigation funds, including under SRL and FMA. Finally, this interim rule makes technical changes to clarify current practices and implements conforming amendments to reflect current authorities, including the recent change to the standard amount of authorized Hazard Mitigation Grant Program assistance. DATES: Effective Date: December 3, 2007. Comment Date: Comments on the rule including the new Paperwork Reduction Act collections are due on or before December 31, 2007. Applicability Date: Part 78 will continue to apply to the administration of funds awarded for which the application period opened prior to December 3, 2007. Parts 79 and 80 will apply to the administration of funds awarded for which the application period opens on or after December 3, 2007, except that Sec. 80.19 will apply as of December 3, 2007 regardless of the original project date. ADDRESSES: You may submit comments, identified by Docket ID FEMA-2006- 0010, by one of the following methods: Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments. E-mail: FEMA-RULES@dhs.gov. Include Docket ID FEMA-2006-0010 in the subject line of the message. Fax: 866-466-5370. Mail/Hand Delivery/Courier: Rules Docket Clerk, Office of Chief Counsel, Federal Emergency Management Agency, Room 835, 500 C Street, SW., Washington, DC 20472. FOR FURTHER INFORMATION CONTACT: Cecelia Rosenberg, Mitigation Directorate, Federal Emergency Management Agency, 500 C Street, SW., Washington DC 20472, (phone) 202-646-3321, (facsimile) 202-646-2719, or (e-mail) cecelia.rosenberg@dhs.gov. SUPPLEMENTARY INFORMATION: Request for Comments FEMA encourages public participation in this rulemaking. Comments will be most helpful if they state a particular section (or sections) of the rule, and offer specific proposals for change, as needed. All submissions received must include the agency name and docket ID (FEMA- 2006-0010). Regardless of the method used for submitting comments or material, all submissions will be posted, without change, to the Federal eRulemaking Portal at http://www.regulations.gov, and will include any personal information you provide. Therefore, submitting this information makes it public. You may wish to read the Privacy Act notice that is available on the Privacy and Use Notice link on the Administration Navigation Bar of http://www.regulations.gov. All comments received, as well as this document are available on the public docket for this rulemaking. For access to the docket, go to the Federal eRulemaking Portal at http://www.regulations.gov. Submitted comments may also be inspected at FEMA, Office of Chief Counsel, Room 835, 500 C Street, SW., Washington, DC 20472. At this time, FEMA does not anticipate it will hold a public meeting for this rulemaking project. Table of Abbreviations BC--Benefit Cost BCA--Benefit Cost Analysis CAP-SSE--Community Assistance Program-State Support Services Element CRS--Community Rating System DHS--Department of Homeland Security FEMA--Federal Emergency Management Agency FIRM--Flood Insurance Rate Map FIS--Flood Insurance Study FMA--Flood Mitigation Assistance HMGP--Hazard Mitigation Grant Program ICC--Increased Cost of Compliance NEPA--National Environmental Policy Act of 1969 NFIA--National Flood Insurance Act of 1968 NFIF--National Flood Insurance Fund NFIP--National Flood Insurance Program OMB--Office of Management and Budget PDM--Pre-disaster Mitigation POC--Point of Contact PRA--Paperwork Reduction Act of 1995 RFC--Repetitive Flood Claims SHMO--State Hazard Mitigation Officer SQA Net--Simple and Quick Access Net SRL--Severe Repetitive Loss USACE--United States Army Corps of Engineers I. Background This rule implements provisions of the Bunning-Bereuter-Blumenauer Flood Insurance Reform Act of 2004 (the Act), Public Law 108-264, 118 Stat. 714, found at 42 U.S.C. 4102a. The Act amends the National Flood Insurance Act of 1968 to provide new programs and incentives for States and communities to mitigate flood damage to severe repetitive loss properties. Severe repetitive loss properties are residential properties covered under a contract for flood insurance that have incurred flood-related damage (i) for which 4 or more separate claims payments have been made under flood insurance coverage, with the amount of each such claim exceeding $5,000, and with the cumulative amount exceeding $20,000; or (ii) for which at least 2 separate claims payments have been made under such coverage, with the cumulative amount exceeding the value of the property. Pursuant to the Act, this interim rule implements the new Severe Repetitive Loss (SRL) program, which is authorized by the Act until September 30, 2009, and amends the existing Flood Mitigation Assistance (FMA) program to meet the requirements of the Act. In addition, FEMA is modifying the mitigation planning regulations to minimize the burden on State, local, and Indian tribal governments, to streamline the planning process, and to ensure consistency in the local planning requirements that apply to all FEMA mitigation programs, including the SRL and FMA programs. Also, effective October 4, 2006, section 684 of the Post-Katrina Emergency Management Reform Act of 2006, Public Law 109-295, amended the amount of Hazard Mitigation Grant Program (HMGP) assistance authorized for States with an approved Standard State Mitigation Plan from 7.5 percent to 15 percent of the total estimated Federal assistance (excluding administrative costs) provided for a major disaster under FEMA Public and Individual Assistance programs for amounts spent up to $2 billion, and established a sliding scale for HMGP assistance, based on the amount of the total estimated [[Page 61721]] Federal assistance. This interim rule amends FEMA's regulations to reflect this statutory change. II. Discussion of Interim Rule The SRL grant program was created pursuant to Section 1361A of the National Flood Insurance Act of 1968 (NFIA, or ``the Act''), 42 U.S.C. 4030, as amended by the Bunning-Bereuter-Blumenauer Flood Insurance Reform Act of 2004, Public Law 108-264, with the goal of reducing flood damages to SRL properties. The long-term goal of the SRL program is to reduce or eliminate claims under the NFIP through project activities that will result in the greatest savings to the NFIF in the shortest period of time. The new program, the SRL program, is authorized through September 30, 2009 and is designed to provide mitigation assistance to address properties that have experienced repetitive flood losses and that are insured under the NFIP. The SRL program focuses on a subset of all repetitive flood loss properties: Those residential properties with a high frequency of losses or a high value of claims. The mitigation of losses sustained by these properties, through projects such as buyouts, elevation, relocation, or floodproofing, will produce savings for policyholders under the NFIP and for Federal taxpayers through reduced flood insurance losses and reduced Federal disaster assistance. The program relies on a strategy of making mitigation offers to these severe repetitive loss property owners and shifting more of the burden of recovery costs to those property owners who decline the offer of mitigation assistance, and choose to remain vulnerable to repetitive flood damage, by incrementally increasing their rates for flood insurance. As established by Congress, the sale of flood insurance under the NFIP is subject to the rules and regulations of FEMA. FEMA has elected to have State-licensed insurance companies' agents and brokers sell flood insurance to consumers. Those whose rates are increased will be eligible to appeal this increase via an independent third party from a list based on professional qualifications impartially developed by FEMA's Alternative Dispute Resolution (ADR) office. To reduce costs, the property owner may request that the Administrator substitute a reviewer from FEMA's ADR office for the independent third party. With respect to grant programs, FEMA has actively engaged in flood mitigation through its HMGP, FMA, PDM and Repetitive Flood Claims (RFC) programs. Each of these programs was created under different legislative authorities, and as a result, have varied impacts on reducing the nation's inventory of the most floodprone structures. What has not existed is a program that specifically addresses and provides funds for the elimination of, or reduction of risk to, the subset of those properties that create the largest impact on claims paid from the NFIF. Most of these properties existed before the inception of the NFIP and its associated floodplain management standards, and are thus eligible for discounted insurance rates. Furthermore, none of these other programs feature a formal mitigation offer process whereby insurance rates may be increased if the property owner declines the offer. FEMA intends to focus the SRL program in communities and on property owners who choose to participate in the program. This will maximize the benefits of the program, while minimizing adverse impacts on communities and property owners. The program will provide an opportunity for many property owners to address recurring flooding problems, and reduce the impact of these events. The legislation also provides an incentive to mitigate damage to severe repetitive loss properties through reduced non-Federal cost- share requirements for the SRL and FMA programs (from 25 percent to 10 percent) for projects in States with approved State Mitigation Plans that meet the additional repetitive loss requirements. The reduced cost share would be available only for projects that address severe repetitive loss properties. While the SRL and FMA programs will be implemented as separate programs, with different funding accounts, they are similar in their goals and purpose. FEMA has included both of these programs in one implementing regulation to ensure as much consistency as reasonable between the programs and to limit the confusion around program implementation, since both programs will likely be managed by the same State agency staff. The final rule implementing the FMA program is published elsewhere in today's Federal Register. (It follows an interim rule published March 20, 1997 at 62 FR 13346.) See 44 CFR part 78. This part will continue to be used to implement the FMA program for all grants awarded for which the application period opened prior to December 3, 2007. This new interim rule creates a new part (part 79, with details specific to acquisition projects at a new part 80), that restates the requirements for the existing FMA program in a format more consistent with the approach to all of FEMA's mitigation grant programs. Part 79 will implement the FMA program for all grants awarded for which the application period opens on or after December 3, 2007. Part 79 also implements a change to the cost share available to States under the FMA program if their approved mitigation plan meets certain criteria, described herein in Sec. 201.4. States would be eligible for a reduced cost share if their mitigation plan addresses actions related to reducing the risk to repetitive loss properties that they have already taken, and those actions that they intend to take. The requirements for the new SRL program are incorporated into this rule. In addition, this interim rule brings the FMA program regulations into conformance with current policies, and ensures better conformance to existing grants management requirements. In authorizing the SRL program in section 102 of the Act, and amending the FMA program in section 103 of the Act, Congress directed FEMA to ``provide assistance for properties in the order that will result in the greatest amount of savings to the National Flood Insurance Fund in the shortest period of time'' and to provide assistance for activities that are ``in the best interest of the National Flood Insurance Fund.'' FEMA has concluded that Congress' stated goals for the two programs are similar. Therefore, there is no substantial difference in how FEMA will determine the funding priority for the two programs. As an additional aspect of implementing these programs, this rule includes a new part (part 80) which describes the requirements and procedures for open space property acquisition which applies to the SRL and FMA programs, as well as all FEMA hazard mitigation assistance programs. In light of the Act's requirements regarding property acquisition, FEMA determined that a central reference point for all mitigation grant program property acquisitions would make the programs more consistent overall and easier to implement. Elsewhere in today's Federal Register, FEMA published a final rule implementing section 322 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Stafford Act), 42 U.S.C. 5165. (It follows an interim rule published February 26, 2002 at 67 FR 8844.) The final rule identified the requirements for State, Tribal, and local mitigation plans. This new interim rule streamlines the mitigation planning requirements contained in that rule by making the [[Page 61722]] FMA planning requirements, currently implemented in a separate part of the regulation at Sec. 78.5, consistent with the mitigation planning requirements outlined in part 201. This will ensure that local governments can comply with one set of mitigation planning requirements in order to be eligible to apply for all FEMA mitigation project grant funding, including the FMA and SRL programs. In addition, this interim rule streamlines the roles and responsibilities of Indian tribal governments in mitigation planning. In the preexisting regulations, Indian tribal governments were given the option of preparing either a State-level Mitigation Plan, or a Local-level Mitigation Plan, depending on whether or not they intended to apply directly to FEMA as a grantee or whether they would apply through the State as a subgrantee. FEMA has found, however, that neither of these options has sufficiently met the needs of the Indian tribal governments. To address this problem, this interim rule establishes a specific planning requirement for Indian tribal governments that recognizes some of the unique aspects of these governments. The rule establishes Tribal Mitigation Plans for plans prepared and approved after December 3, 2007. The rule provides that plans prepared and approved under the preexisting rule, under either the State or local requirements, would also be recognized as Tribal Mitigation Plans. These older plans, however, would be required to meet the revised criteria when the original approval expires. Most Indian tribal governments fit the local planning model, in that they do not have sub-jurisdictions as States do; however, if they are grantees, the rule would require that they provide the capability assessment and identification of funding options that are listed in the State plan requirements. This rule combines the appropriate aspects of these planning requirements into one section, with a single plan required for Indian tribal governments. This rule also implements section 106 of the Act, which modifies the insurance rates for property leased from the Federal government ``located on the river-facing side of any dike, levee, or other riverine flood control structure, or seaward of any seawall or other coastal flood control structure.'' These properties will be charged the full actuarial insurance premium rates. Finally, this rule makes conforming amendments, as well as technical corrections to clarify current authorities and practices. This rule thus makes revisions to the amount of assistance available to States under the Hazard Mitigation Grant Program in Sec. 79.4 as a result of changes made to the Stafford Act in the Post-Katrina Emergency Management Reform Act passed in October 2006. III. Solicitation of Public Comments Section 102 of the Act required FEMA, within 90 days of the Act, to consult with State and local officials in carrying out the development of procedures for the distribution of funds to States and communities to carry out eligible mitigation activities. To meet this requirement, FEMA published a Federal Register notice on September 15, 2004, at 69 FR 55642, to initiate consultation with State and local officials, as well as members of the public. In the notice, FEMA solicited responses to the following questions: What key factors FEMA should consider in developing the SRL program; the parameters that FEMA should use to define severe repetitive loss for multifamily structures; the process FEMA should use to notify property owners that their property is considered a severe repetitive loss property by virtue of the legislative definition; the criteria FEMA should use to allocate funds to States, including whether or not there should be caps on the funding as is the case under the FMA program; the criteria that should be used to approve State mitigation plans to take advantage of the increased Federal cost share; the criteria FEMA should use to determine projects that will result in the greatest amount of savings to the National Flood Insurance Fund (NFIF); and, what types of assistance should FEMA provide to States and communities when making offers to owners of SRL properties. Interested parties initially had until November 30, 2004, to submit written comments in response to these questions. FEMA extended the deadline for comments until December 7, 2004. FEMA received 26 written comments. Eight of those comments were received from States, ten from communities and eight were from associations. On November 17, 2004, as part of the consultation process, FEMA held a meeting in Washington DC with representative officials of State and local governments, organizations representing emergency management, floodplain management, and insurance professions, and other interested parties. FEMA reviewed and considered all oral and written responses as FEMA developed the SRL grant program and this interim rule. FEMA's questions, the public comments, and FEMA's responses to the public comments are listed below. Question 1: What key factors should FEMA consider in developing the Pilot Program for Severe Repetitive Loss Properties under section 1361A? Multiple commenters stated that the program should be administered by the States, similar to existing FEMA mitigation grant programs, including FMA and Pre-Disaster Mitigation (PDM). However, once commenter wrote that the existing programs take too long to implement. Multiple commenters stated that funding allocations should be disbursed based on the location of SRL properties (those with the greatest drain, greatest losses, most number of SRL properties, etc.), rather than disbursing funds evenly among States. Multiple comments indicated that the ranking of properties should ensure that those properties with the most loss claims should be addressed first. Multiple commenters stated that allocations should also consider the State and/or community capability, defined as having plans in place, past performance shown to mitigate repetitive loss properties, projects lined-up, and/or matching funds available. Multiple comments also indicated that funds should be prioritized to those communities with experience managing FEMA funds and/or with matching funds and projects lined-up. Multiple commenters indicated that reallocations should occur quickly to move funds to communities that need them. A considerable number of commenters stated that the data used for determining those properties that meet the SRL property definition was not accurate and needed to be updated/corrected, and that real-time claim reporting was needed. Multiple commenters stated that the parameters for demolition rebuild projects need to be clarified. Multiple commenters stated that property owners, communities, and States must be able to determine the most appropriate mitigation measures. Multiple commenters stated that there needs to be clear definitions for ``notices'' and ``offers,'' and that both need to include clear details of the appeals process and insurance implications. Further, multiple commenters stated that there needs to be a clear description of the property value in an offer. Multiple commenters stated that FEMA would need additional staff with National Flood Insurance Program (NFIP) expertise to manage the program. [[Page 61723]] Multiple commenters stated that the Increased Cost of Compliance (ICC) should be made available for match, or indicated that many communities would not be able to provide the cost share. Multiple commenters indicated that the program should focus on cost effectiveness, and Benefit/Cost analysis in particular. Multiple commenters indicated that the planning requirement should be clearly defined, and multiple commenters suggested a plan be required to prioritize funding. Multiple commenters requested that a streamlined, simple, or tailored application and grants management process be implemented; and that guidance needs to be clear regarding the roles and responsibilities of FEMA, States and communities. Multiple commenters stated that mitigation funds should be directed to only those covered under an NFIP policy. Multiple respondents indicated that insurance policy writers needed education and awareness/ outreach, both to understand the program and the ICC benefits. FEMA's Response In response to comments regarding administration of the program by the States, the new Part 79 added in this rulemaking deals with the States' program administration responsibilities, which are being designed similar to the way FEMA's other mitigation grant programs operate. In response to comments regarding the accuracy of data used to identify SRL properties, insurance and claims information for properties validated as meeting the legislative characteristics of SRL are now available to States on a web-based site (SQA Net), which is updated monthly. Furthermore, regulations and program procedures clearly describe the notice, offer, and appeals processes. Program procedures have been developed to define the parameters and limitations imposed for the demolition/rebuild activity type. State, local and tribal mitigation plans will be required and are described in this interim rule; allocation of funds will be based on the number of SRL properties within each State, in accordance with the authorizing legislation; it is also described in this interim rule. Awards shall be prioritized in order of the greatest savings to the National Flood Insurance Fund, by virtue of the Benefit Cost Ratio. With respect to concerns over the accuracy of claims data, FEMA has continually worked to update the claims information data to increase accuracy, including field verification of property information when necessary. Furthermore, property owners can discuss errors in their claim history with NFIP representatives. As described under the response to Question 3, a property owner is given a toll-free number to call if they have questions about their designation as an SRL property. With respect to concerns regarding the details of receiving a mitigation offer, particularly for an acquisition, FEMA has developed an offer letter that will contain information regarding the mitigation project type; the amount of the purchase offer, including the basis and methodology for calculating the purchase offer, and the final offer amount that reflects applicable deductions; notification that participation in the SRL program is voluntary; the amount of time the property owner has to accept or reject the offer; the right of the property owner to appeal the increase in flood insurance rates if they refuse the offer; a summary of the consultation process, and other pertinent information. In response to the comment that funds should only be directed to those covered under a NFIP policy, the definition of a SRL property includes the requirement that the property is covered by a NFIP policy. ICC coverage under the Standard Flood Insurance Policy (SFIP) provides for the payment of a claim to help pay for the cost to comply with State or community floodplain management laws or ordinances from a flood event in which a building has been declared substantially damaged or repetitively damaged. When an insured building is damaged by a flood and the State or community declares the building to be substantially or repetitively damaged, ICC coverage will help pay for the cost to elevate, floodproof, demolish, or relocate the building up to a maximum benefit of $30,000. This coverage is in addition to the building coverage for the repair of actual physical damages from flood under the SFIP. ICC claims payments from previous flood events may be used to meet the non-Federal cost share requirements, as long as the period for making such a claim remains open. Question 2: What parameters should FEMA use to define severe repetitive loss for multifamily structures consisting of 5 or more residences? Multiple commenters stated that the multifamily properties definition should be the same as the single-family properties definition. However, several alternative options to define multifamily properties were suggested including: The ratio of cumulative loss versus replacement cost; The determination of substantial damage for a structure; A proportionate definition based on the number of units; or Five or more residences covered under a single contract for flood insurance that have had 4 or more claims, each exceeding 6.25 percent of the replacement value of the structure, with cumulative payments exceeding 25 percent of the replacement value. Parameters to consider included total damages, number of losses, dollar loss per claim, and low-rise versus high-rise structures. Multiple commenters agreed that at least 2 claims payments that cumulatively exceed the replacement value of the structure (as stated in Section 1361A(b)(2) of the Act) should apply to single family as well as multifamily properties. Multiple commenters indicated that multifamily properties should follow single-family properties as the priority for mitigation funding. Multiple commenters indicated that Benefit Cost Analysis data applied to multifamily projects consider more than building damages, but also content damages, in order to make multifamily projects cost- effective. FEMA's Response FEMA evaluated two options in selecting the definition of ``multifamily property'' for the purposes of this interim final rule. The first option was keeping the same claims thresholds as defined in the Act for single family properties. The second option FEMA evaluated was defining ``multifamily property'' as reflecting the increased property values and number of units typically associated with multifamily properties. FEMA analyzed claim information for multifamily properties and determined that a claim history including four separate claims of $25,000 with the cumulative amount of such payments exceeding $100,000 or having at least two separate claims payments with the cumulative amount of such claims exceeding the value of the property would be reasonable criteria to select for the meaning of the term ``severe repetitive loss'' for multifamilty properties. Based on evaluating options, FEMA determined that selecting the first option allowed properties for which a relatively inexpensive mitigation solution may be available (such as elevating HVAC equipment or eliminating finished enclosures below [[Page 61724]] elevated floors) to be eligible for SRL program funds. These minimal mitigation steps may also lead to a diminished need for disaster housing as well. This definition was chosen because it allows for the maximum number of multifamily residences to be eligible for funding consideration under the SRL program by virtue of meeting the definition of an SRL property. Thus, ``multifamily property'' is defined in part 79 as ``a property consisting of five or more residences''. Furthermore, the definition of ``Severe Repetitive Loss'' as defined in part 79 of this interim rule uses the same parameters for multifamily properties as for single family. Question 3: What process should FEMA use to notify property owners that their property is considered a severe repetitive loss property as defined by the statute? A considerable number of commenters stated that notices to property owners needed to be coordinated with, sent concurrently to, or shared with State, Tribal and local communities. A considerable number of respondents stated that FEMA should be responsible for notifying property owners, and multiple commenters indicated that this notice should be in writing, either through certified or registered mail. A considerable number of respondents stated that the notice needed to include clear, non-legal, plain English language that described the notice, the program, the determination, the process, appeals, etc. Multiple commenters suggested a standard form or one-page document explaining the program. Furthermore, multiple responses wrote that the notice be provided with the property owner's insurance policy renewal to link the program to insurance coverage. Multiple commenters stated that disclosure in property records, and real estate transactions needed to be enforced. FEMA's Response FEMA's Special Direct Facility (SDF) is operated by the NFIP's Servicing Agent. It has been in existence since 2000, when FEMA determined it needed to manage more closely the loss adjustments to the subset of repetitive loss properties that had the highest number of losses. For the same reasons, property owners whose claims history meets the SRL criteria have been receiving letters approximately 150 days before their policy is renewed that identify their properties as SRL properties. In addition to managing loss adjustments, the SDF will manage the increase in premiums should the property owner decline an offer of mitigation. The letters also explain that their flood insurance policy will be transferred to FEMA's Special Direct Facility (if the policy is not already being serviced there). These letters are also sent to the property owner's flood insurance agent, and to their mortgage lender. This letter provides a toll-free number that the property owner can call if they have questions about their designation as an SRL property, or any other questions about the transfer of their policy. Question 4: What criteria should FEMA consider when allocating funds to States and/or communities under the Pilot Program? Should FEMA consider base allocations for States with higher numbers of severe repetitive loss properties? Multiple commenters stated that funds should target those properties with the most losses to the NFIF, therefore targeting the most egregious properties regardless of location. A considerable number of commenters indicated that allocations should be based on the total number of SRL properties per State. Finally, multiple commenters indicated that base allocations for those States with high numbers of SRL properties should be considered. Multiple commenters stated that any allocation should provide enough to cover the cost of at least 1 project or some acceptable number of properties, and multiple responses stated that allocations should consider variations in costs to mitigate. Commenters wrote that additional considerations for allocation included capability factors, such as project readiness, leveraged local investment, past mitigation grant performance, NFIP compliance, and Community Rating System (CRS) ratings. Multiple commenters suggested FEMA base allocations on approved mitigation plans. Commenters suggested several alternative bases for allocations, including: Insured values or market values, or values based on value of future losses. FEMA's Response Subpart 79.4 of this interim rule provides for allocations to be based upon the percentage of the total number of SRL properties located within each State, as per the authorizing legislation, Flood Insurance Reform Act of 2004, Public Law 108-264. States with little or no allocation will be able to apply for 10 percent of the total funds appropriated in any fiscal year, provided that the State or Tribal applicant has at least 1 SRL property. State allocations will be large enough to permit the implementation of at least 1 project. FEMA considered several options in evaluating how to administer allocations based on the percentage of the total number of SRL properties located within each State, as per the authorizing legislation, Flood Insurance Reform Act of 2004, Public Law 108-264. States with little or no funding allocation will be able to apply for 10 percent of the total funds made available under SRL in any fiscal year, provided that the State or Tribal applicant has at least one SRL property. The options evaluated and not accepted included small allocations to all States; larger allocations to a limited number of States with numerous SRL properties; and a variety of allocation scenarios for States with a limited number of SRL properties. Ultimately FEMA decided on an allocation that could be adjusted annually based on the number of SRL properties in a particular State. FEMA would evaluate the point at which it is more beneficial for a State to compete for the 10 percent set-aside than to receive an allocation that was insufficient. This allocation approach provided the necessary funds to accomplish mitigation projects. The average flood mitigation project funded under FEMA's mitigation programs is approximately $70,000-$100,000. The legislation also required a 10 percent set-aside of the grant funds for States receiving little or no allocation. FEMA determined that ``little or no allocation'' meant the point at which it was more beneficial for a State to compete for appropriate funds to accomplish mitigation activities than to receive a small allocation, or one which is below the $70,000-$100,000 average mitigation project cost. The allocation option that FEMA selected is a reasonable approach to both allocations and the 10 percent set-aside. Question 5: Should there be caps on Pilot Program funding for States and communities similar to Flood Mitigation Assistance program funds? If so, how would the cap amounts be determined? The overwhelming response was there should be no caps on funding. Multiple commenters requested FEMA remove the caps on funding currently implemented under the FMA program as well. [[Page 61725]] FEMA's Response At the commenters' request, FEMA has not imposed any funding caps within the SRL program. FMA caps are not changed by this rule, since they are statutorily based. Question 6: What criteria should FEMA use to review and approve State mitigation plans consistent with 44 CFR part 201 to ensure that they contain recommended actions to mitigate severe repetitive loss properties? Multiple commenters indicated that FEMA should be as flexible as possible in the criteria used to review and approve plans, including simple goals and strategies that acknowledge properties at risk. Multiple commenters indicated that mitigation is local, and therefore States should not be held accountable for local strategies. Multiple commenters suggested that existing State or local plans should be accepted, particularly given the limited timeframe of authority for the Pilot program. Suggestions, if a plan is required, included providing for amendments to existing plans and approving projects while the amendments are being reviewed. Multiple commenters suggested that criteria to be reviewed focus on capability factors such as plan implementation, past performance and effort, not the number of severe repetitive loss properties mitigated. Multiple commenters were concerned that the lack of accuracy in the repetitive loss database may affect their ability to meet the planning requirements related to severe repetitive loss property mitigation. Discrepancies in claims information and property values as shown in the repetitive loss database may result in not showing certain properties as being SRL properties, yet those properties may in fact have been mitigated, ``counting'' towards a SRL property mitigated. Similarly, database discrepancies may show a property as being SRL, when in fact it may not be. Therefore, if the property has not been mitigated, it may count ``against'' the state's efforts to indicate mitigation of SRL properties in their state plan. Several commenters stated that disclosure of offer and insurance information needed to be a part of the property's permanent record, and information needs to be conveyed to the existing and new homeowners regarding the mitigation offer. Finally, multiple commenters indicated that there were too many ``lists'' between repetitive loss and severe repetitive loss. FEMA's Response In this interim rule, FEMA requires states to have an approved State Mitigation Plan meeting the requirements of Sec. Sec. 201.4 or 201.5 to qualify for the reduced non-federal cost share. The plan must satisfy all standard requirements but also identify specific actions the state has taken to reduce the number of repetitive loss properties; specify how the state intends to reduce the number of such properties; and describe the state's strategy to ensure that local jurisdictions with SRL properties take actions to reduce the number of these properties, including the development of local mitigation plans. Amendments to currently approved State plans will be acceptable. However, at the time of the next required plan update, the amendment must be incorporated into the plan and adopted as part of the plan. Until such time as the amendment is approved by FEMA, grants could be awarded; but the lower non-Federal cost share would not be available until the amendment is approved. While State and local plans must contain different types of data, the two types of planning efforts must be linked via common mitigation goals and objectives. With respect to the number of repetitive loss lists, FEMA has made available a separate list of SRL properties on SQA Net, which is available to State NFIP Coordinators and State Hazard Mitigation Officers via FEMA Regional Offices. SQA Net is a secure web portal that enables access of data from the NFIP flood insurance database. Data is updated monthly. In pursuing a repetitive loss strategy, FEMA developed a definition of repetitive loss structures, and maintained a list of those structures. A target repetitive loss list was also developed, which consisted of a subset of the list of repetitive loss properties that had the highest number of losses. FEMA does not consider these lists to be excessive, and finds that each serves a valuable purpose. Question 7: What criteria should FEMA use to make the determination that a State has taken actions to reduce the number of severe repetitive loss properties in its communities? Commenters characterized criteria in terms of qualitative and quantitative criteria, as well as procedures for developing and reviewing plans. Qualitative factors suggested include the effort (that is, the number of offers made or the most egregious properties approached, but not necessarily accepted or mitigated); documentation that any actions were taken; partnerships with other programs and funding sources; level of outreach; and strength of the Community Assistance Program-State Support Services Element (CAP-SSSE). This program provides funding to States to provide technical assistance to communities in the National Flood Insurance Program (NFIP) and to evaluate community performance in implementing NFIP floodplain management activities. Quantitative factors proposed include number of properties mitigated, higher regulatory standards, number of Community Rating System (CRS) communities, number of repetitive loss properties, other programs in place, a plan in place, prioritization of properties, leveraging of matching funds, and others. Multiple commenters stated that States with approved mitigation plans in place should not have to submit new plans or ``prove'' that actions have been taken. Conversely, multiple commenters suggested that States submit a report or other documentation each year to show actions taken. FEMA's Response Section Sec. 201.5(c)(3)(v) of this interim rule addresses the State mitigation planning requirements for meeting this provision. The regulation requires documentation of actions already taken that specifically focused on SRL properties. Because the mitigation measures for each State and community could vary widely depending on the factual circumstances of each state and community, FEMA opted not to set fixed criteria. With respect to submitting plans and updates, since most States already have approved mitigation plans, they may only need to make limited revisions or clarifications to the plan that focus on this subset of properties. The entire plan will not need to be resubmitted, only the amendment that pertains to the SRL mitigation actions. Finally, at a minimum, states are required to review and update their mitigation plans every 3 years. Although they may opt to submit revisions annually, showing the mitigation actions taken, FEMA believed an annual requirement to be overly burdensome. Question 8: What criteria should FEMA use to determine projects that will result in the greatest amount of savings to the National Flood Insurance Fund? How should the criteria relate to current FEMA procedures for determining cost effectiveness? A considerable number of commenters stated that Benefit Cost [[Page 61726]] Analysis (BCA) should be used to determine the greatest amount of savings to the NFIF. Multiple commenters indicated that the benefit cost analysis should be waived for all SRL properties or for those with 2 or more claims that cumulatively exceed the property value. Additional suggestions for the use of benefit cost methodologies included providing clear guidance, a request that it be simple to use, and that it allow FEMA and applicants to consider all factors, not just damages. Commenters provided alternative criteria for ranking properties such as: claims paid; claims relative to property values; greatest cost savings to insured properties mitigated; or cost effectiveness based on insurance premium costs. Multiple commenters expressed that the term ``property value'' needed to be defined clearly, whether based on appraisal value, replacements value, insured value, or fair market value. FEMA's Response All projects for which FEMA provides funding must be cost effective. For the purpose of determining the amount of savings to the NFIF as a result of the project, FEMA agreed with the commenters and used a Benefit Cost Ratio. In this rule, FEMA determines an SRL property by the cumulative amount of claims when 4 or more claims have been made, or by the market value of the property in relation to the cumulative amount of two or more claims when that cumulative amount exceeds the market value (Sec. 79.2(g)). Instead of using the term ``property value'', FEMA used the term ``market value'' and defined it in Sec. 79.2. FEMA defined market value as the amount in cash, or on terms reasonably equivalent to cash, for which in all probability the property would have sold on the effective date of the valuation, after a reasonable exposure time on the open market, from a willing and reasonably knowledgeable seller to a willing and reasonably knowledgeable buyer, with neither acting under any compulsion to buy or sell, giving due consideration to all available economic uses of the property at the time of the valuation. Question 9: What types of assistance do States and communities want from FEMA when making offers to owners of severe repetitive loss properties? Multiple commenters asked for funding for States and communities to assist with administrative costs, technical assistance needs, staff, and application development as part of making offers to owners of SRL properties. State and community commenters also stated that legal assistance prior to initiating offers and negotiating with owners would assist them. A considerable number of commenters stated that the data supporting the SRL properties list needed to be updated for accuracy, including validating the data for addresses, names, claims history, and property values. In addition, commenters requested access to the database, SQA Net, flexibility to add structures or validate data, and verifying premiums. Commenters also suggested FEMA maintain a single national database for projects, and provide information on the true actuarial rate in case of refusal at the time of the offer. Multiple commenters stated that adequate number of FEMA staff needed to be available to manage the program, and that the staff needs to be trained in NFIP and FEMA mitigation programs. Multiple commenters stated that assistance was needed to notify property owners of the consequences of not accepting offers. The commenters also stated that a simple FEMA handout or document explaining the insurance repercussions and the appeals process would be extremely helpful. Multiple commenters also requested FEMA describe the tax implications of accepting mitigation funds. Multiple commenters requested training be made available or improved for the program, and specifically identified insurance agents as a target for training. FEMA's Response As with our other grant programs, administrative costs are available to applicants and subapplicants as a percentage of the grant award, once the grant is awarded. Furthermore, applicants and subapplicants may be reimbursed for pre-award costs for activities directly related to the development of the project proposal. These costs can only have been incurred during the open application period. These criteria are detailed in Sec. 79.8 of this interim rule. Certain legal expenses may be considered eligible applicant and/or subapplicant management cost activities when associated with: solicitation, review and processing of the SRL subapplications and subgrant awards, obtaining pre-award consultation agreements from SRL property owners, and staff salary costs directly related to performing the activities above. All management cost activities must be in conformance with 44 CFR part 13, Uniform Administrative Requirements for Grants and Cooperative Agreements to State and Local Governments and applicable program guidance. Applicant management costs are limited to up to 10 percent of the grant award and subapplicant management costs are limited to up to 5 percent of the grant award. Eligible management costs incurred prior to the grant award, but after the SRL application period has opened are identified as pre-award management costs. Costs incurred with respect to pre-award activities associated with project implementation are not eligible. Data on SRL properties is available on the SQA Net to State NFIP Coordinators and State Hazard Mitigation Officers. This data is being validated and updated continuously. Over one third of the properties identified as having a data anomaly have been validated. New information is published each month on SQA Net. Information on the insurance premium rate increases for property owners refusing the mitigation offer will be provided during the consultation. Project- related data for the SRL program will be housed within the same database that is maintained for all other Pre-Disaster Mitigation (PDM) grant programs. Only FEMA Regional and disaster related staff as well as State personnel, have been granted access to the repetitive loss and SRL data available to SQA Net. Several new features have been added to SQA Net recently including the ability to submit requested updates to repetitive loss records electronically over the Internet. The ability to search for claims records and to view former and active policy records via SQA Net is expected to be in place by Spring 2008. With respect to allowing local government access to SQA Net, there are concerns regarding potential security issues and the increased possibility of the unintentional inappropriate release of the data at the local level resulting in a Privacy Act violation. Although they do not have access to the SQA Net system, local communities continue to be approved users of the repetitive loss data under the Privacy Act. Program implementation information will contain information on premium rate increases, if a property owner refuses the mitigation offer. This program information also contains checklists of the types of information that the State or community would need to compile and make available as part of the consultations. The program information will be augmented further with mitigation consultation tools and resources for States and communities to aid in the consultation and offer process. [[Page 61727]] Tax implications of accepting mitigation offers must be answered by the property owner's tax advisor or other State or locally sponsored tax advisory service. FEMA does not have the authority to provide information on this issue. Section 207 of the Bunning-Bereuter-Blumenauer Flood Insurance Reform Act of 2004 calls for the establishment of minimum training and education requirements for insurance agents who sell flood insurance policies. FEMA is working with state insurance commissioners on training requirements for agents that sell flood insurance policies. Question 10: What role should states and communities have in the appeals process for severe repetitive loss property owners who decline mitigation offers under the Pilot Program? What rules and procedures should be contained in the Appeals Process? Of the comments received, 19 entities offered comments on question 10. A general synopsis of these comments is as follows: ---------------------------------------------------------------------------------------------------------------- States/ Local Associations/ General comments on appeals process territories communities organizations ---------------------------------------------------------------------------------------------------------------- Advocate information sharing between FEMA and States....... 1 3 4 Advocate State and/or community involvement in Appeals 5 4 1 Process................................................... Advocate that only FEMA be involved in Appeals Process..... ............... 1 ................. State participants still discussing the issue with other 1 ............... ................. State agencies............................................ ---------------------------------------------------------------------------------------------------------------- The following are the comments on the appeals requirement of the Pilot Program presented by State and local officials and representative organizations during the consultation: Clarity in the details, especially the Appeals Process and the insurance consequences. States and communities are also sensitive to any possibility of liability which may preclude much participation in the Appeals Process. However, States and communities may be willing to participate in an administrative capacity in collecting data for appeals and ensuring that applications are completed. Property owners should make an appeal in writing, along with supporting documentation. The jurisdiction can also file documentation either in support or against the property owner's reason for the appeal. The decision to accept or deny the appeal must come from FEMA, thereby removing the States and communities from the threat of legal action. FEMA should send written notice of its findings to the state, community and property owner. Appeals rule requirements should not be written in a way that allows the property owners to easily avoid mitigation activities or higher flood insurance premiums. States and communities should be an informational role; again, concern to keep the States and communities from the potential legal liabilities. The local communities and the State officials should just assist people with the appeals. FEMA should make all your final decisions and handle all the paperwork. We also feel that there should be some formal recommendation from your parishes or local communities or State. The appeal process should start with the community. If the owner of a property rejects an offer but can easily show that in purchasing, that he relied on a FIRM [Flood Insurance Rate Map] map that indicated the property was not on the mapped flood hazard area, this should not have to go to FEMA. The appeal should go through the local government. They are the ones with claims on the property; they could validate it. Should come through the state as the administrator of the program. We could validate it; just like with an appeal from the local government, you concur, you may not concur, no comment, but that provides the additional insight. FEMA's Response As established in Sec. 78.7(d) of this rule, an appeal on increased insurance rates is made in writing by the property owner to the FEMA Regional Administrator within 90 days of the date of the notice of insurance increase. The Regional Administrator may request the Grantee, and Sub-grantee (State and community) if applicable, to assist in the collection of data to support the property owner's appeal. The Regional Administrator will review the information provided by the property owner and may participate in discussions with the property owner, and if applicable, with the Grantee and Sub-grantee to resolve the appeal prior to sending it to an Independent Third Party or a reviewer from FEMA's Alternative Dispute Resolution office (at the property owner's discretion). IV. Regulatory Requirements A. Administrative Procedure Act Statement In general, FEMA publishes a rule for public comment before issuing a final rule, under the Administrative Procedure Act, 5 U.S.C. 533 and 44 CFR 1.12. The Administrative Procedure Act, however, provides an exception from that general rule where the agency for good cause finds that the procedures for prior comment and response are impracticable, unnecessary, or contrary to public interest. This interim rule implements provisions of the Bunning-Bereuter- Blumenauer Flood Insurance Reform Act of 2004, which amended the National Flood Insurance Act of 1968. The key component of this rule includes implementation of the new SRL program as well as amending provisions of the existing FMA program. The rule also streamlines the planning process, and clarifies the planning requirements to address existing, unanticipated inconsistencies. Authorization for the SRL program expires on September 30, 2009. Funding for the new SRL program was made available as of fiscal year 2006, thus it is important to allow States, tribes, communities, and property owners to access these funds so that they may have the opportunity to reduce their flood losses to these high risk properties as soon as possible. It is also in the public interest to mitigate these SRL properties as soon as possible to minimize further costs resulting from upcoming seasonal flooding. These properties often pose the highest costs to the Nation in terms of discounted Federal flood insurance rates, as well as Federal disaster assistance payments, Prior comment on this rule is not in the public interest where the implementation of the new SRL program, as well as the modified FMA program, will assist States recovering from flood disasters nationwide, including Hurricanes Katrina and Rita, by providing additional grant resources [[Page 61728]] and increasing the Federal cost share for projects mitigating SRL properties. In particular, States and communities are at a critical stage for identifying properties to be mitigated in the post-Katrina recovery efforts, and these funds are essential for targeting the most costly properties in the area. To be most effective, the funds need to be made available to the Gulf Coast States and communities affected by Katrina and Rita as soon as possible. At the end of August 2007, there were just under 8,100 properties identified as meeting the definition of severe repetitive loss properties; approximately 58 percent, or 4,685 properties, lie within the 5 States most affected by Hurricanes Katrina and Rita. Mitigating these SRL properties will provide States the opportunity to reduce future losses to these SRL properties, which represent the largest drain on the NFIF and also will reduce future disaster costs to the local, State, and Federal government. States, tribes, and communities also have a strong interest in accessing, as soon as possible, information in the rule that outlines how the States can revise their mitigation plans to receive the reduced cost share under the FMA and SRL programs. This cost-share reduction is an important incentive and, in some cases, necessary to allow communities, which otherwise would not be able to meet the match requirement, to mitigate SRL properties. It is essential that the availability of this information not be delayed, particularly where in many cases the revisions to mitigation plans will themselves, require time-consuming coordination across multiple agencies. In accordance with the Administrative Procedure Act, 5 U.S.C. 553 (b), FEMA believes that prior notice and comment would be contrary to the public interest, as it would serve only to delay the benefits of this rule to States, tribes, and communities, and would continue imposing the costs of these at-risk properties on the general public. FEMA nevertheless recognizes the importance of public input in the regulatory process. To that end, FEMA involved the public in a consultation process prior to the publication of this interim rule. To initiate the consultation process, FEMA published a Federal Register notice on September 15, 2004, 69 FR 55642. The comment period was supposed to close on November 30, 2004, but FEMA extended the deadline for comments until December 7, 2004, and received 26 written comments from States, communities, and associations. Also, as part of the consultation, FEMA invited representative officials of State and local governments, organizations representing emergency management, floodplain management, and insurance professions, to provide oral presentations on the requirements and issues raised in the Federal Register notice. Comments received were given careful consideration in the preparation of this interim rule. Finally, FEMA actively encourages and solicits comments on this interim rule from interested parties. These comments will be given careful consideration, and could result in changes to these regulations. B. National Environmental Policy Act FEMA has considered this rule in accordance with its implementing regulations for complying with the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321-4370f), which are found at 44 CFR part 10. This rule addresses applicant planning requirements, as well as eligibility, funding increases, and cost sharing/funding incentives relating to certain disaster mitigation programs and does not change the type or nature of mitigation actions that may be funded. This rulemaking would neither individually nor cumulatively have a significant effect on the human environment and, therefore, neither an environmental assessment nor an environmental impact statement is required. This rulemaking is among the category of actions included in the Categorical Exclusions listed at 44 CFR 10.8(d)(2)(ii), which excludes the preparation, revision and adoption of regulations from the preparation of an environmental assessment or environmental impact statement, where the rule relates to actions that qualify for categorical exclusions. The related actions of the development of plans and administrative activities that are included in this rule are also categorically excluded under 44 CFR 10.8(d)(2)(iii) and 44 CFR 10.8(d)(2)(i). C. Executive Order 11988, Floodplain Management FEMA has prepared and reviewed this rule under the provisions of Executive Order 11988, Floodplain Management. Part 9 sets forth FEMA's policy, procedures, and responsibilities in implementing this Executive Order. In summary, these are, to the greatest possible degree: To avoid long and short term adverse impacts associated with the occupancy and modification of floodplains; avoid direct and indirect support of floodplain development whenever there is a practical alternative; reduce the risk of flood loss; promote the use of nonstructural flood protection methods to reduce the risk of flood loss; minimize the impacts of floods on human health, safety and welfare; restore and preserve the natural and beneficial values served by floodplains; and adhere to the objectives of the Unified National Program for Floodplain Management. As stated in the rule, the purpose of the SRL and FMA programs is to mitigate insured property losses from floods, thereby minimizing impacts to the NFIF, which is consistent with the intent of the Executive Order. In addition, for project activities funded through the SRL and FMA programs, each project will go through the environmental review process, which will include compliance with Executive Order 11988. D. Executive Order 12866, Regulatory Planning and Review FEMA has prepared and reviewed this rule under the provisions of Executive Order 12866, Regulatory Planning and Review. Under Executive Order 12866, a significant regulatory action is subject to the Office of Management and Budget (OMB) review and the requirements of the Executive Order. The Executive Order defines ``significant regulatory action'' as one that is likely to result in a rule that may: (1) Have an annual effect on the economy of $100 million or more or adversely affect in a material way the economy, a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local, or tribal governments or communities; (2) create a serious inconsistency or otherwise interfere with an action taken or planned by another agency; (3) materially alter the budgetary impact of entitlements, grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raise novel legal or policy issues arising out of legal mandates, the President's priorities, or the principles set forth in the Executive Order. Regulatory Alternatives In determining how to move forward with this rule, two alternatives were considered. The first alternative was to issue an interim rule for the SRL program, and to modify the existing separate FMA rule to incorporate changes made by the Act. This would result in two sect