Contractor Craig Schusterick, left, stands in front of his three story, 2,860 square foot home on Balboa, replacing the previous cottage that was on the property before. (Don Leach, Daily Pilot / May 3, 2013)

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Structures on Balboa Island must be lifted to nine feet above sea level if owners want to make substantial improvements. In the case of nearly all of Balboa's older houses, which are between six and eight feet above sea level, owners would have to embark on expensive and logistically difficult projects to lift them those extra feet.

Why?

"Good land-use management would say we should avoid building in high-risk areas," said FEMA floodplain management and insurance branch chief Gregor Blackburn. "Or, if they're going to be built, we all need to work in cooperation in support of each other."

On a larger scale, the idea is to avoid having to rebuild the same disaster-prone neighborhoods over and over again. Flooding, after all, accounts for about 90% of federally declared disasters, a FEMA official said.

And the federal government would ultimately have to foot the bill in the event of one of those disasters, which is why FEMA has a stake in how flood risk is managed.

The audit told the city, "You're implementing your own [flood management] program incorrectly," as Newport's Chief Building Official Seimone Jurjis put it before a packed Balboa Island Fire Station on a misty Saturday morning in March.

The city had not been enforcing limits on new construction and had not been depreciating values of homes. In order to comply, FEMA officials encouraged the city to implement a depreciation schedule.

City staff members did, but the depreciation scale they set for the well-kept cottages, which often sell for $2 million to $3 million with the primo land on which they stand, was steep — even though the improvement limits are based on the value of "bricks and sticks" alone, not an oceanfront lot.

A 5-year-old house would be depreciated by 6%, while a decade-old house would see its value drop by 20%.

And those classic 1930s bungalows, with their breezy bay windows, intricate brick fireplaces and remodeled bathrooms? Those would have seen a depreciation of 70%, as would any house built before 1953.

Start that depreciation from what residents have said was a paltry $160 per square foot, then divide that whole number in half, and you're looking at sums that wouldn't get would-be preservationists like Schusterick and Coleman far.

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More than 'bricks and sticks'

For decades, the Balboa Island community had existed in relative harmony with the dark gray blob enveloping the island on maps denoting that the island, along with parts of the Balboa Peninsula, falls within a Special Flood Hazard Area — a flood zone.

But in recent months, the changes the city made following the 2011 audit started to put FEMA and the city's relationship on residents' radar.

"My take is that FEMA went to the city [and said], 'If you want us to endorse your flood insurance, then you need to conform to our guidelines.' What the city did was they conformed to FEMA's guidelines," said resident Terry Jansen. "That's what really caused the red flag."

Jansen, a Balboa Island Improvement Assn. board member who has helped spearhead efforts to raise the community's awareness about the issue, said he was chatting with longtime island Realtor Laura Gale about a year ago when she mentioned the remodeling hurdles.

Don Abrams, another island real estate agent who estimated he's sold about half of the 1,200 homes on Balboa Island at some point since 1998, added that he had at least one house fall out of escrow because a prospective buyer had wanted to remodel.

"I sell lots of homes that are preservable," which people plan to add to or remodel, he said. "I own two older homes myself, and I strongly believe in preservation. The older homes have a lot to do with the character of the island."

So, Jansen said, he asked residents to get involved.