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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"I just think that the island should be saved for the charm," he said. "If people want bigger and better, that's fine, let them build these big monster houses. But if someone wants to add to these nice cottages ... I didn't just pay dirt value for it, I bought a house."

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Newport and the NFIP

Floods, though, don't distinguish between historic seaside homes and McMansions — when they come, they drown shiny hardwood floors and shag carpet alike.

The NFIP, administered by FEMA, offers federally backed flood insurance for homes in flood zones, so long as the city or community where they're located is enrolled in the program.

Cities can participate in the NFIP if they pass a flood plain management ordinance, as Newport Beach did in 1993. In doing so, they agree to enforce FEMA flood mitigation rules — like the substantial improvement caps — in exchange for access to federal money.

"What it does is say, 'Communities, if you're going to join the NFIP, we will make a map showing your risk. Then in return, you need to adopt and enforce [a flood plain ordinance] at a local level,"' Blackburn said.

Without a federal program, officials say, it would be nearly impossible for homeowners to get affordable flood insurance in the private sector. And without flood insurance in a flood zone, most lenders can't give homeowners mortgages.

"Lenders that buy property and sell property have federal oversight," Blackburn said. "They have auditors to enforce federal regulations."

Those regulations require that lenders review for risks, one of which is flood hazard. Then, if a structure is at risk of flooding, lenders must require a borrower to carry flood insurance before issuing an FDIC-backed loan.

According to FEMA officials, as of Jan. 31, Newport Beach homeowners carried 1,609 NFIP policies covering $470,755,600 worth of buildings and their contents.

Although Newport isn't bound to enforce flood mitigation measures by law, per se, every five years or so, FEMA audits communities enrolled in the NFIP to ensure that they're complying with flood mitigation measures. If the city falls out of compliance with those rules, its status in the NFIP could be jeopardized, in turn jeopardizing the funding and benefits that come from the city's enrollment in the program, officials say.

Nevertheless, Newport residents wonder whether their risk is being unfairly lumped in with the rest of the country's, since all NFIP insurance is part of the same pool.

Balboa Island is no New Orleans, and it's not on the Eastern Seaboard, regardless of what the Cape Cod cottages evoke.

Furthermore, residents say, private insurers may be able to provide a lower-cost alternative to the NFIP's premiums, which, in spite of discounts afforded to Newport residents because of its high standing in an NFIP community rating system, run thousands per year. And with recent federal legislation, they're climbing even higher for many residents.

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What's next?

At the April study session, Selich called on city staff to look into possible salves, among them: commissioning independent studies of the harbor's flood risk (which could cost up to $200,000 and months of time) exploring whether the city's long-anticipated (and also pricey) Balboa sea wall rebuilding project would lower flood risk, and withdrawing from the federal program altogether.

So what would happen if Newport dropped out of the NFIP?

"There are very real and financial consequences," Blackburn said.