7. New England's small participation in Federal outlays on flood control The case for a mixed-insurance and insurance-subsidy program is strengthened by the following, because it shows that New England does not receive much help from flood control.

Especially relevant here is the fact that under flood control New England received 3 percent of the $10 billion authorized, one-third of 1 percent of the $1.8 billion appropriated in the last 5 years (as Senator Kennedy noted), and my survey of the years 1953 and 1954 shows $666 million spent by the Army Engineers in 1953 and $533 million in 1954 and $393 million for reclamation in these 2 years. But New England received but $7 million in all, or less than onehalf of 1 percent. Her share of income, however, is 62 percent, of Federal taxes borne 7 percent, of manufacturing employment 9+ percent, and of vulnerability to floods an even greater percentage.

8. Resolutions of New England Governors

A minimum program which must be supplemented by programs to deal with flash floods is suggested by the New England Governors. We strongly support the resolution of the New England Governors of September 23 for expenditures of $34.3 million for fiscal year 1957 for flood-control projects recommended by Army Engineers and approved by the New England Governors; $12.45 million for construction in 1957 of navigation and beach-erosion projects; authorization of an expenditure of $1.5 million for emergency funds by the Chief of Engineers for immediate planning of flood-control projects authorized in affected or potentially affected areas; a supplemental appropriation of $3.5 million by next February 15 to start construction of such projects; and $200,000 to expand and expedite the authorized $600,000 New England hurricane survey and $100,000 for studies of additional flood protection.

9. Insurance and expenditures on flood control

Despite the unsatisfactory record on flood-control outlays both in the country and in New England, the Hoover Commission has just announced that outlays are excessive; that overall period of 50 years present plans call for outlays of $41 billion aside from $16.8 billion under plans of the Department of Agriculture. Even admitting that these estimates are grossly exaggerated (so far $42 million have been appropriated under Department of Agriculture plans) and that even the inflated $41 billion figure involves outlays of less than one-fifth of 1 percent of the GNP expected over this period, it is clear that there are powerful interests determined to reduce Federal flood-control program. The Hoover Task Force, disturbed by State and local sharing of but $176 million (6-7 percent of total costs, demands an immediate contribution of 50 percent of costs for State and local governments. But in view of the rise of State and local expenditures in the face of rigid taxes of 21⁄2 times since 1946, as compared with one of 14 for Federal expenditures, and of national debt of 8 percent for the Federal Government and of 110 percent for State and local debt, or 14 times as much for Statelocal governments, is this a realistic approach?

10. Insurance and disaster relief

Acknowledging gratefully the help proposed by the Federal Government under ODM Regulation I, amendment I (accelerated amortization), Executive Order No. 10,634 (loans to aid in reconstruction, rehabilitation and replacement of facilities), and under ODM Order VII-7, supplement I (favoring disaster areas in Federal procurement), we nevertheless urge the Federal Government to move further. In particular, it is imperative that tax allowances be given to the textile and other industries damaged by the floods but not eligible for accelerated tax amortization under ODM Regulation I, because no expansion goals have been set for them by the ODM; that the Government specifically state that the textile industry is eligible for loans under Order 10,634 and especially that the Bureau of Internal Revenue allow as offsets for tax payments from current income any private outlays incurred to reduce the danger and damage of floods. Finally, we are no longer assured by the promises coming from high sources in Washington for years that distressed areas would be given preferential aid by Government procurement agencies. "Only two preference contracts valued at $100,000 or more were awarded to New England firms in labor surplus areas in 1954. The entire program of granting tax amortization assistance [in labor surplus areas] was expected to create 9,000 jobs. ***" (U. S. Monthly Labor Review, June 1955).

Disaster relief has not been adequate and is not likely to be. Hence the case for insurance is strengthened.

11. What kind of insurance?

We need a combination of insurance and subsidy.

We need rates that reflect only in part vulnerability.
We need wide coverage.

We need experimentation at the beginning.

Note that with experience in crop insurance adverse selectivity was cut, continuous policies were devised, and many other improvements made. The difficulty of discovering appropriate rates is perhaps as great as in flood insurance (one factor in crop insurance). Thus in the first 5 years indemnities under the crop-insurance program as a percentage of premiums were 164, 151, 168, 149, and 182, but in the years 1950-53, the figures were 91, 112, 97, and 115 (Agricultural Finance Review, November 1954, p. 58).

12. Coverage and rates

One approach is to assume costs of $300 million per year as estimated officially (with estimates to vary with experience). Then all property in the plain flood areas might be covered. An expert for the Hoover Commission has estimated the property thus to be covered at $400 billion. Hence the cost would be 75 cents per $1,000, or $7.50 per $10,000 on the average. Insofar as the coverage was extended to nonflood areas, the costs would be reduced. On the assumption that all wealth would be covered, the costs would be reduced to 37% cents per $1,000. On the assumption that the Federal Government would bear the costs of administration also to offset savings on taxes and disaster relief, the cost to property owners should not exceed 30 cents per $1,000, or $3 per average home per year. The ideal situation would be to add the payment to the general property tax (GPT). On the assumption that $200 million were to be collected, the net addition to the GPT would be 2 percent of present revenues of $10 billion. 13. The Saltonstall-Kennedy flood-insurance bill

This marks a great advance forward and should be seriously considered. The coverage is rather limited and probably because of the recognition of the opposition Federal insurance may occasion. But Senator Kennedy well said the alternatives are public insurance or no insurance.

14. Property values

The best estimate available of net worth is the following:

This estimate leaves out of account losses to individuals of income resulting from disasters-both workers and part of the income potential of others. To some extent the Government would have some responsibilities here.

15. Flood insurance and disaster insurance generally

It is my understanding that this committee is concerned not only with flood insurance but with disaster insurance generally. In this general picture flood insurance is a relatively inexpensive item. One atomic bomb, for example, might result in the destruction of billions of dollars of property and also of income. It is easy to envisage the loss of half the country's wealth and more than half the income as a result of atomic warfare.

Certain general principles can be suggested for disaster insurance broadly defined:

1. Coverage by insurance can only be limited, in part because actuarial principles are not available. The $1 billion program suggested under the War Damage Corporation Act of 1951 would be most inadequate and either involve the Government in large subsidies or give the insured an unjustified feeling of security.

2. A better proposal would be one suggested by the Budget Bureau in 1951, a limited guaranty by the Government. In this instance the guaranty was to be $20 billion for private property and $2 billion for public property (roughly 4 percent of the wealth of the Nation, or a little more than one-half of 1 year's construction). In this manner, part of the damage at least would be covered

and the Government would have a free hand to deal with emergency situations, inclusive of losses of incomes. Guaranties, say, running into hundreds of billions, would be impractical because of the unavailability of resources to rebuild except over a long period.

3. It would be a great mistake to collect large sums of insurance premia even if the public were cooperative. Compulsory insurance would probably not be acceptable. Even in 1949 there were almost $100 billion tied up in insurance, pension, and retirement reserves. Contnued accumulations of this sort may well have disturbing effects on the economy.

Senator LEHMAN. Thank you very much indeed for coming. I want to ask you just 1 or 2 questions, and then I will ask Senator Bush and Senator Kennedy if they have any.

In the very last paragraph on page 10 you say, "It would be a great mistake to collect large sums of insurance premiums even if the public were cooperative. Compulsory insurance would probably not be acceptable."

I want to say that it is probable you are right on that. I am merely seeking light.

Mr. HARRIS. Yes.

Senator LEHMAN. We have had testimony that it would be well for the Government-this refers to wide coverage of natural disasters to add a very small additional amount to the income tax that people pay. That of course would not in the first year or two in all probability be enough to cover anything but a small part of natural disasters if such disasters did occur on a large scale. But why wouldn't it be a good idea to do that and in that way build up a reserve which might not in 1 or 2 or 3 years be enough to care for it but would in the course of a longer period? I know that you advise against it, but I would very much like to know your reasoning.

Mr. HARRIS. I think, as a matter of fact, if you get that kind of legislation through probably it would save a lot of administrative headaches and be more equitable if you could put it on incime tax rather than property tax, if it were done that way. The reason this would disturb me would be, for example, if you were actually carrying through this kind of program-Were you thinking about atomic warfare as well or merely flood insurance?

Senator LEHMAN. I was thinking of largely natural disasters, but it certainly could be atomic attacks. That could easily be added to that.

Mr. HARRIS. Yes, sir. I say as far as flood insurance goes I would be with you. I don't think that the amount of accumulation of reserves would be a very serious matter. We are already accumulating something like $10 billion in all kinds of reserves of this kind. But if you are talking about the real disasters-I mean atomic warfare-then I think it would be a mistake to accumulate large sums of money, because, for example, you would be in a sense paying off national debt. What you do with this money obviously is not sit on it but use it to pay off Government securities held by all kinds of people.

In a general way whenever there is prosperity there is a lot to be said for paying off Government debt, and if you accumulate this money in prosperity and pay of Government debt at that time, that would be fine. But if you had a rule you would collect say $4 or $5 billions year for this general disaster program and paid off Government debt every year irrespective of business conditions, then you might have a

serious effect on the business situation. I think this might be a mistake.

If you could make the repayment or the question of money flexible according to economic conditions, which is a very difficult think to do in view of the fact that Congress is jealous of its rights in these matters, I would be inclined to agree; otherwise not.

Senator LEHMAN. Let me ask you this question: I don't know whether I understand your proposal with regard to disaster insurance, atomic-energy disaster insurance or compensation. As I understand, your proposal is that the Government obligate iteself to reimburse for property loss and personal loss up to $20 billion in the aggregate. That would not be an insurance policy. It would simply be an obligation that the Government has entered into with its people. Am I correct?

Mr. HARRIS. That is right. Indemnity.

Senator LEHMAN. The next thing is not a question at all; it is an observation. I was very much interested in your statement. It is excellent, as I am sure my colleagues would say, too. We are going to keep the record of these hearings open for several weeks now. I think the figures that you gave with regard to the differential between payments by certain States and the amount which they have received from the Government for flood control and for other purposes are most interesting ones. As I have said, I hope that you would add States like New York, notably New York because that is the State of course that I am particularly and primarily interested in, but also other States like Pennsylvania and Illinois if you could add those to your computations and place the figures in the record.

I think that if we can show that great divergency-not attacking any State at all, not casting any aspersions-I think our chances of success in this thing would be greatly improved.

Mr. HARRIS. I will be very glad to do that.

Senator LEHMAN. Senator Bush.

Senator BUSH. Mr. Chairman, I would just like to share your observation about the competence of Professor Harris as a witness here. I think there is no witness who has been before this committee yet who has showed such a complete degree of preparation and understanding of this problem, and I think the committee is very grateful to him for this fine presentation of his views. We hope we will hear more from you.

Mr. HARRIS. Thank you.

Senator LEHMAN. Senator Kennedy.

Senator KENNEDY. Just one question. On this business of how much the rates would be based on the area that has been flooded during the last 20 years or so and on the reasonable acceptance of the program and without too much of a Federal subsidy, I don't know whether you could get that rate down as low as you had it. I don't know quite how you got those figures.

Mr. HARRIS. You mean the 37 cents?

Senator KENNEDY. Yes. You went into some detail on this before. I just saw the outline so I did not understand how you arrived at it. Mr. HARRIS. I might say this is the third piece I have done on the flood. I think each one is better than the last. I hate to think how bad the first one was.

If you assume only the flood-plain areas with coverage, that is $400 billion.

Senator KENNEDY. Would you say the areas which have been flooded perhaps in the last 20 years or so?

Mr. HARRIS. I was thinking in terms of a statement the Hoover Commission made, namely, the property in the flood plains is worth about $400 billion.

Senator KENNEDY. By "flood plains" what do you mean?

Mr. HARRIS. Particularly large cities on the eastern seaboard, along the Mississippi, and so forth, wherever there is any real danger of floods. The wealth in this region-and you know, of course, there are a great many big metropolitan centers-is estimated at $400 billion. I myself, having gone through a number of the estimates of the Hoover Commission, would like to check on this. I am just simply using their figure now. I suspect it may be a little less than that. Anyway, it gives you a rough idea.

That against $300 million, which we assume the annual loss to be on the basis of the last estimate of the Hoover Commission-what the losses are likely to be; $300 million into $400 billion is 75 cents per $1.000. If you double the amount of coverage and cover all wealth, roughly that would cut the amount down from 75 cents to 371⁄2 cents. Senator KENNEDY. Double for all wealth?

Mr. HARRIS. That would bring the average down, you see, to 3712 cents. Of course, you could not get this additional property in without making special rates for them, and, therefore, I am simply giving you the average rate. The range might be somewhat wider.

Senator KENNEDY. When you double the rate you mean you bring in disasters other than flood?

Mr. HARRIS. No; no. I just simply mean that instead of covering $400 billion we would cover $800 billion-say virtually all property and wealth in the country. If you cover twice as much and you only have to cover $300 million worth of damage, the rate would be one-half of 75.

Senator KENNEDY. Why should anybody in the other areas take it? Mr. HARRIS. On the theory that we would set up the rates in such a way that there would be a sufficient Government subsidy involved. Or, as Senator Lehman suggested, we might operate through an income tax, you see.

You are not going to get these other States in unless you give them a very low rate, but you will get some more revenue in. It may very well be instead of 37-cent rate you will get a 60-cent rate.

Then on top of that you are going to make the Federal Government pay, say, one-quarter because of taxes saved, and so forth. That would get you down to 45 cents.

Senator, what you are saying to me is my 3712-cent rate is too low. I am perfectly willing to agree with you. Perhaps 60 cents is the right price.

Senator KENNEDY. I never thought you would get any kind of base of those who would be willing and felt their risk was such it would warrant them coming in. Of course, if the rate is this low they would come in.

Mr. HARRIS. Especially if the Government paid a sufficient part where the risk was low. Where you had great risks you might, for