SENATE BILL NO. 11 "An Act relating to flood insurance; relating to property insurance; establishing the Alaska Flood Authority and the Alaska flood insurance fund; and providing for an effective date." 9:51:53 AM Co-Chair Hoffman relayed that it was the first hearing for SB 11. 9:52:21 AM Senator Bert Stedman, Sponsor, introduced the bill. He read from a Sponsor Statement (copy on file): Senate Bill 11 has been introduced to protect Alaskans from financial abuse at the hands of the Federal Emergency Management Agency (FEMA). FEMA administers the National Flood Insurance Program (NFIP). The NFIP was created to share the risk of flood losses (nationwide) through flood insurance. The program enables property owners in participating communities to purchase insurance protection, administered by the government, against losses from flooding. FEMA requires flood insurance for all residential loans or lines of credit that are secured by a building located in the FEMA Flood Zone in a community that participates in the NFIP. The National Flood Insurance Program was historically the only source of flood insurance. In 2012, congress reauthorized the NFIP and included a provision allowing private companies to offer flood insurance policies. Another change occurred in 2021 when FEMA adopted a new ratemaking method called Risk Rating 2.0. This new methodology attempts to make the NFIP more solvent and has resulted in an expansion of flood zones and an increase in premiums for 77 percent of plans backed by the NFIP. Homes and businesses in a new FEMA flood zone could see significant negative impacts to property values from requirements to purchase expensive flood insurance (flood insurance must be purchased if the owner uses a federally insured bank). The new and expanded flood zones can also restrict how a structure is built on private property and impact existing homes and businesses that want to rehabilitate, upgrade, expand, or repair buildings. Currently, Alaskans are paying flood insurance to offset the billions in hurricane losses in the Lower 48. Furthermore, the NFIP must be periodically reauthorized by congress (next by March 14, 2025) and has lapsed four times in the past, creating significant hurdles for people seeking mortgages in flood areas. Combine this with very few payouts to flood victims and it can easily be concluded that the NFIP doesn't work for Alaskans. It is the intent of Senate Bill 11 to supplant the NFIP with an Alaska based insurance program that keeps the premium payments in Alaska, benefiting Alaskans. 9:56:27 AM Co-Chair Stedman continued his remarks. He recounted that when he had considered the issue a few years previously and had concerns about the minimum insurance coverage ($250,000 for residential and $500,000 for commercial), he had compared statewide premiums paid compared to losses. He had found it alarming that Alaskans were paying large amounts of money for a small amount of money back. He pondered that the insurance was subsidizing the Mississippi River Basin, the Gulf of Mexico, and the East Coast from hurricane exposure. He cited that between 2008 and 2021 Alaskans had paid almost $41 million in premiums for the National Flood Insurance Program (NFIP) and received only $6.5 million in claims paid. Co-Chair Stedman referenced page 5 of a report to the legislature from the Department of Commerce, Community and Economic Development (copy on file). The report was entitled "FEMA National Flood Insurance Program Premium Analysis," and showed that while the city of Bethel paid $2.2 million in premiums and received zero dollars in claims. The city of Juneau paid $4.2 million in premiums and had received $435,979; and Anchorage paid $2.2 million and received $171,000. He described the balance as lopsided. He discussed restrictions and considered that FEMA intentionally wanted to push development off the coast and did not want rebuilding with pilings or rock fill off the coast. He discussed the topography of Southeast and the challenge of building away from the coast. He noted that FEMA had updated its flood maps and included new risk and rating systems for Alaskans. He referenced changing home designations to being within flood zones (with a requirement for flood insurance) and mentioned Ketchikan having hundreds of homes reclassified. Co-Chair Stedman used the example of an older home with flood damage that was out of compliance; which could only utilize $150,000 for repairs, bringing it up to compliance, or tearing it down. He mentioned lost equity and asserted that the current policy restricted Alaskans from maintaining older homes. He found the issue alarming. He pointed out that the national program was periodically reauthorized by Congress and noted that there were lapses. He mentioned "complete chaos" in Washington D.C., and the possibility that FEMA could be liquidated or substantially reduced. He thought it would be good for the state to put in its own program, with an increased limit of $250,000 for residential homes and $2 million for commercial structures. He thought the committee might want to ponder and amend the amounts. He pointed out that $250,000 was not a large sum to do much to a residential structure. 10:01:06 AM Co-Chair Stedman shared a significant concern that Alaskans were subsidizing other areas of the country while being subjected to massive building restrictions. He mentioned organized communities that had planning commissions, and the state's desire that local communities go through the planning and zoning processes and to make decisions. He thought planning commissions were perfectly capable of managing building on waterfronts, and that building departments were perfectly capable of issuing permits to build above the high-tide line. He noted that the original inhabitants of the state did not build villages below high- tide lines, nor were later buildings built below the high- tide line. He thought the state could produce more coverage for less premiums. He used the example of Sitka, which had only had one loss since 1977; while Ketchikan had a few and Juneau had a few. He mentioned issues with the Mendenhall River in Juneau. He reiterated the concern of Alaskan residents having to subsidize expenses in areas such as the Mississippi Delta or Florida. He hoped to get the bill on the table to be discussed during the interim. 10:03:47 AM Senator Kaufman thought it seemed like the old homesteaders were savvy and had not built below the tideline. He was curious about the funding plan. He asked about potential funding from the Alaska Housing Finance Corporation (AHFC) and asked how the conversations had gone and if AHFC was amenable. Co-Chair Stedman considered a lot of the prices of the bill to be "place holders." He thought there may be a need for seed capital to get the proposed program up and running until premiums kicked in. He asserted that more dialogue was needed with AHFC as the legislation was refined. Senator Kaufman mentioned that he had spent a lot of time in the South in hurricane areas. He referenced conflicting requirements that necessitated building so high that wind damage was exacerbated. He echoed Co-Chair Stedman's comments pertaining to FEMA not wanting people to settle on the coast. 10:05:51 AM ROSE FOLEY, STAFF, SENATOR BERT STEDMAN, relayed that she had a Sectional Analysis (copy on file) available to present if the committee wished. Co-Chair Hoffman asked to forego the Sectional Analysis. Senator Kiehl appreciated the bill, which he thought covered more things that were currently uninsurable, including landslides. He asked about the inclusion of coverage to protect against losses from avalanches. Co-Chair Stedman thought there had been interest in landslide provisions. he mentioned landslides in recent years that had resulted in loss of life. He pondered that a bill might benefit from being more narrowly focused until it was up and running, and adding expansions at a later time. He relayed that there had been interest in covering landslides, which required different analysis and consideration of flood zones. He thought the Division of Insurance might have some commentary on the topic. He pointed out that Juneau had exposure to both landslides and flooding. He mentioned the Mendenhall River. Ms. Foley added that the bill as currently written included coverage for mudflow but not landslides. Senator Kiehl considered state finances and thought it appeared as though the funds for the program would be subject to the "sweep" and subject to annual appropriation. He wondered if the sponsor had given thought to structuring the funding to have more durability to carry over year after year in case things went "haywire" in the building. Co-Chair Stedman appreciated Senator Kiehl's point. He did not want the funding subject to the sweep, so that premiums would accumulate and exceed claims and the margin. He hoped to get premiums lowered. Ms. Foley added that the bill set up the Alaska Flood Authority Fund as a fund in the treasury outside the General Fund, and not subject to the sweep. 10:09:20 AM Co-Chair Hoffman OPENED public testimony. 10:09:30 AM Co-Chair Hoffman CLOSED public testimony. 10:09:36 AM Senator Kiehl reviewed the first of four fiscal notes. He addressed FN 1 from DCCED, OMB Component 1027. The commissioner's office did not anticipate costs in the current fiscal year, and had an indeterminate assessment on setting up and capitalizing of the new fund. Senator Kiehl addressed a new fiscal note from DCCED, OMB component 2879. The difference from the earlier version of the fiscal note showed in FY 26 $569.9 thousand of UGF. In FY 27 the amount went down to $539.9 of DGF. The amount dropped to $41.9 thousand in FY 28. The fiscal note called for three permanent full-time positions. The note also marked the new fund. Senator Kiehl spoke to FN 3 from DCCED's Division of Insurance, OMB Component 354. The fiscal note started with an FY 26 cost of $521.6 thousand of receipt supported services, as well as two full-time positions and a temporary position. In FY 27 the amount went down to 472.6 DGF. In FY 29 the amount went down to just below $300,000 and the temporary position went away. Senator Kiehl addressed FN 4 from the Department of Revenue's Alaska Housing Finance Corporation (AHFC), OMB Component 110. The department provided an indeterminate note and did not know how much of the $500,000 backstop would be called upon. Co-Chair Stedman commented that he did not think the shore- front residents of the state were not interested in a free ride. He thought the project would have to pay for itself and might need some seed capital that could be paid back. He commented that the premiums being paid to the federal government were so excessive, it should be possible to make the program pay for itself. He thought in the end the program would be a net zero for the state. He affirmed that he was not looking for the state to subsidize or pay for the proposed program. Co-Chair Stedman volunteered Senator Kiehl's office to work on the bill with his office over the interim. He mentioned Juneau's landslide [flood] and water issues. SB 11 was HEARD and HELD in committee for further consideration.