West Wildwood is urging homeowners to elevate their homes in the wake of Hurricane Sandy and even is educating them on different funding sources to pay for the job.
Reducing damage in the next coastal storm is not the borough’s goal, however. As with many communities on the New Jersey shore, West Wildwood is more worried about preserving its tax base.
More than 25 percent of the homes in the bayside borough were damaged by Sandy. Most of that damage is fixable in a town accustomed to flooding, even from heavy rain or a full-moon high tide. But it’s a question of whether the property owners will be able to afford the repairs: New federal flood elevations and insurance costs could put much of the town’s ratable base at risk.
The concern extends far beyond West Wildwood. Preliminary estimates from the state Department of Treasury show the tax rolls at the shore lost $4.3 billion in ratables from Sandy. Losses are still coming in, so that figure is expected to increase.
Some worry those Sandy losses could seem small compared with future losses to flood-insurance rates that will escalate because of new Federal Emergency Management Agency, or FEMA, elevation recommendations on which those rates are based. The new Flood Insurance Rate Maps are due in 2014. Another factor is a 2012 federal law, the Biggert-Waters Flood Insurance Reform Act, that is phasing out federal flood-insurance subsidies for secondary homes.
“Insurance could go up four to five times its present level, in some cases up to $30,000. It will denigrate property values if flood insurance is that high. It will definitely have a drastic impact on ratables for local and county government, and the state’s tax structure,” Cape May County Freeholder Director Jerry Thornton said.
A preliminary update to FEMA flood maps after Sandy has placed 95 percent of West Wildwood’s 900 homes in a hazardous flood zone called a V-zone. The entire borough was previously in a less hazardous A-zone. Being in a V-zone, as opposed to an A-zone, where lower elevations are required, has huge implications for flood-insurance premiums. That is, unless homeowners elevate.
“That’s why we’re stressing to people, you need to do something. You need to get your house up,” Borough Administrator Christopher Ridings said.
Ridings said a home assessed at an average of $250,000 could get a wide range of potential premiums under the new FEMA rules, depending on the house’s elevation in relation to FEMA’s recommended base flood elevation. At four feet below base flood elevation, the bill would be $10,700 per year. Right at the base flood elevation it would be $1,800 a year. At four feet above base flood elevation, it would be just $500.
Putting more of a town in a V-zone means higher recommended base flood elevations. An A-zone typically requires 10 feet above base flood elevation, while a V-zone is generally 15 feet above. Not conforming to them means higher flood-insurance costs. Since lenders require flood insurance, that could be a problem for the real estate market. That is especially true in shore towns, where most of the houses are second homes and are somewhat of a luxury. Flood-insurance costs that are as high as a mortgage payment could kill the sales of second homes. The concern is that some will simply walk away or sell at a loss, which would reduce real estate values on which tax assessments are based.
There is a move to slow the imposition of Biggert-Waters, which was enacted a year ago to address record financial losses in the federal flood-insurance program caused by storms such as Hurricane Katrina.
Thornton argues it won’t matter because “at some point you’re going to pay the piper.” He noted half of the county’s houses are second homes subject to losing federal flood-insurance subsidies. The main FEMA funding program to raise homes, a way to keep insurance costs down, is open only to primary homes.
Ridings, however, is telling homeowners to contact their insurance companies, since they sometimes provide funding to elevate homes that sustain substantial damage (at least 51 percent) in storms.
Thornton said Cape May County has a high population of low-income and elderly residents who will not be able to afford to raise their homes. He said he has already received calls from residents who plan to abandon their shore homes. He envisions older shore homes not built at the new elevations losing so much value that wealthy buyers can purchase three of them, tear them down and build one big new house.
“Poor people who buy to retire or as an investment are pushed out. Homeowners who own now may have to sell at a significantly reduced rate. It’s going to be a buyer’s market,” Thornton said.
Revised FEMA maps for Cape May County have not been released yet — Ridings said they are due out in late July or early August — and officials are pushing to turn many of the V-zones in the preliminary maps into more lenient A-zones. That happened with revisions to preliminary maps for Atlantic County released in June, and it significantly reduced fears that the new elevations could slash the tax base as much as 25 percent.
“I don’t see 25 percent,” said Keith Szendrey, an assistant to Atlantic County Tax Administrator Marge Schott. “There will be some less desirable neighborhoods that will see something like that. They’ve scaled back the V-zones, and I think some people will live with the risk.” Homeowners who have no mortgage can simply decline to get flood insurance.
While some properties could be abandoned, Szendrey said, some will be rebuilt and get a higher tax assessment. He noted a house built on a slab at ground level could be worth $100,000 now, but if it is replaced with a higher home on piling, the assessment could be as high as $500,000. That would increase ratables.
Schott said there is no “sense of panic” about the coming changes, but she noted a lot of her neighbors in Margate are raising their homes.
“I just can’t believe homes at the seashore will lose their value. Everybody wants to be on the water,” Schott said.
The latest maps in Atlantic and Ocean counties especially calmed fears along the back-bay side of the islands as many of those areas originally set to be V-zones were converted back into A-zones.
The Delaware Bay is expected to be the last area FEMA addresses on flood elevations, and that has left some people on edge. The bayshore never even received preliminary FEMA maps.
“The bayshore could be greatly impacted by this, but until FEMA brings out a map, we don’t know,” said Cumberland County Tax Administrator Patricia Belmont.
Some bayshore communities were devastated by Sandy. Downe Township lost 2 percent of its ratables, and Belmont said Commercial and Maurice River townships sustained heavy damage. She agreed with Szendrey that elevating houses could increase ratables in the long run.
“I’m a wait-and-see person. I want to see if elevated houses sell at a higher value. Then you have a basis for comparable sales,” Belmont said.
The state Department of Treasury has compiled ratable losses from the storm but has not forecast future effects from FEMA changes or Biggert-Waters. Gov. Chris Christie did sign an executive order in support of the new FEMA elevations.
“I don’t know a year or two out what the impact is on property values. I don’t think our folks will have a knowledge base on this,” said Bill Quinn, a Treasury spokesman.
Quinn did maintain the bigger impact is the loss of flood-insurance subsidies.
“Biggert-Waters changed the whole picture,” Quinn said.
Under the act, rates for second homes will increase 25 percent per year for subsidized policies until the rate reflects the true risk. Primary residences still will be subsidized until the house is sold or ownership is transferred.
Ridings said Biggert-Waters came at the worst possible time as the region deals with the devastation from Sandy.
“It was the perfect storm, so to say,” Ridings said.
Thornton, who served on a Sandy task force with other shore elected officials, giving him an audience with federal officials as high as the White House, said he recognizes the need to make solvent the federal flood-insurance program. However, he is pushing for smaller increases in flood insurance and a much higher deductible, perhaps as high as $20,000, to keep rates down. He believes homeowners would accept a “$20,000 roll of the dice” to enjoy lower rates every year.
Biggert-Waters “will have a major economic impact, and not just in New Jersey but the Mississippi River, Ohio River and any floodplain. The legislation doesn’t look at economic impacts. It’s flawed,” Thornton said.
Ridings said he would gladly accept a higher deductible to reduce premiums on his barrier island home.
Municipal tax assessors are on the front lines. West Wildwood Tax Assessor Joseph Gallagher, who has had the job since 1982, said that he has worked closely with the state on assessing Sandy losses and that he expects those losses to increase as much as 20 percent as homeowners are still reporting damage.
Gallagher said assessors up and down the coast are concerned as homeowners assess damage, decide whether to spend money to fix or raise houses and worry about what the new insurance rates will be.
“The dilemma, though, is where do you react? The problem with the assessment function is we, by statute, look at it after something happens. We don’t project into the future,” Gallagher said.
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