Complaints Flood Banks and Fayetteville Officials

Bankers and city officials are finding themselves in deep water with mortgage holders over changes in Fayetteville’s flood insurance rate maps.

The changes could cost business owners hundreds of dollars per year in flood insurance and, in at least one case, as much as $500,000 to improve drainage.

Despite not previously being included in what the Army Corps of Engineers and the Federal Emergency Management Agency deemed to be the city’s floodplain, a number of businesses and residences fell — at least on paper — into potential high-water areas last year when those agencies re-evaluated Washington County’s flood zones.

Most affected property owners began receiving notification last month from their lenders that federal law requires mortgage holders in floodplains to carry flood insurance.

Tom Narrell, trust and compliance supervisor for the Arkansas State Bank Department, said banks “are not supposed to make, increase, extend or renew a loan unless the building or mobile home that’s securing the loan is covered by flood insurance for the term of the loan.”

So people who refinanced last year found out about the change at that time.

As a general rule, even if only the tip of a developed piece of property pokes into a floodplain, FEMA requires coverage. Through August, flood insurance policyholders in Benton and Washington counties had $69.8 million worth of coverage.

Gary Head, president and chief executive officer of Arvest McIlroy Bank, said about 300 of his customers have been affected by new floodplain interpretations. Larry Bittle, an agent with State Farm Insurance Cos. in Fayetteville, and Bob King, Bank of Fayetteville’s senior vice president of commercial lending, also said many of their customers were affected.

Because flood insurance can be costly, property owners are venting their frustrations to their banks and city officials. Sara Edwards, Fayetteville’s development coordinator, said she’s been helping property owners work through new floodplain interpretations. Most people, she said, are surprised to find out they’re included in the flood zone.

She said it’s important for property owners to realize the Army Engineers and FEMA control the revision of floodplain maps that municipalities and lending institutions must follow.

It doesn’t matter that there’s no record of Fayetteville ever having large-scale flood problems, and that only $82,492 worth of flood-related insurance claims have been recorded in Washington County since 1978.

The National Flood Insurance Act of 1968 and the Flood Disaster Protection Act of 1973 gave FEMA and the Corps the power to determine what properties have special flood hazards. The legislation also initiated coverage requirements for floodplains.

Who’s Hit

City Planner Tim Conklin’s office enforces FEMA’s regulations in Fayetteville. He said it would be difficult to pinpoint every potential flood zone in Fayetteville that was expanded or even shrunk since they are sprinkled throughout the city.

“It’s very difficult to do an overlay analysis of what was in the floodplains and what is or is not now,” Conklin said. “Basically, if you know where all the streams and creeks are, the areas that surround them are generally where those zones are. But it’s impossible to say exactly how much new property was included or removed.”

Many businesses in the city’s low-lying midsection — near Colt Square, along both sides of Green Acres Road, between the 1800 block of College Avenue and Poplar Avenue and parts of Gregg Avenue near the Fulbright Expressway — have been affected by an expanded floodplain.

Former Fayetteville Chamber of Commerce president Mike Green is one of the business owners who said he got soaked by the new interpretations. He is president of Green Anderson Engineers Inc., which occupies 75 percent of a 6,000-SF office building at 2233 N. Green Acres Road and owns a portion of the building.

“We got a notice that we’d fallen into this category,” Green said. “It was estimated initially that it could add $800 more per year to our premium, but I have not been able to confirm that amount yet. All I know is our building pad was installed above the existing grade, so if we’re in trouble, there’s a lot more businesses around here that are in a lot more trouble than we are.”

Green, who has been in the building since 1993, said he has never seen water in the drainage creek alongside Green Acres Road get up to the street, much less to his parking lot. And that includes last spring, when some of the heaviest rains in a decade produced spotted flooding around Fayetteville.

Dr. John Marr, a psychiatrist, was hurt worse. His practice at No. 7 Colt Square is now in the floodplain along with the 1.25-acre nearby lot he has for sale. He said because of the new zone interpretations, it might cost $250,000 to $500,000 to improve the lot’s drainage before a building permit could be issued.

“We’re victims of the federal bureaucracy,” said Fayetteville Mayor Fred Hanna. “I can’t imagine us having a rain that would cause severe flooding in that area … I think raising rates and requiring additional coverage because of this is ridiculous, but all you can do is get a survey done and appeal to the Corps to be [excluded from] the flood zone.”

Risk Management

Conklin stressed that just because a property is identified as being in a floodplain doesn’t mean that area is going to flood. It just means the technology now being used by the Corps is producing more accurate maps that he hopes will protect everyone.

“In some areas, we had water running up hill based on what was on the map,” Conklin said. “And we had houses with elevations below the floodplain that should have been in it but weren’t. Hopefully, the better maps will protect the lending institutions’ loan portfolios and people who did not realize they were in the floodplain.”

Mark Stevens, a public affairs officer for FEMA in Washington, said floodplains are determined based on elevation, or what’s called 100-year flood level. The calculation is based on a 1 percent chance that flooding will reach that depth.

The area below that level is deemed “high risk,” and the surrounding area is the floodplain. Stevens said even though northwest Arkansas is in the Ozarks, mountain runoffs, broad areas of concrete and shallow streams all can contribute to flash floods.

What many people don’t realize, Stevens said, is unlike wind damage, flood damage is not covered by homeowner’s or business insurance. It must be purchased separately and is available only in communities that participate in the National Flood Insurance Program (NFIP), which is administered by FEMA and designed to reduce future losses.

He said another misconception is that federal disaster relief will cover heavy flood losses. But disaster assistance is only available when the president issues a major-disaster declaration. Even then, it’s limited and is usually in the form of a loan that must be repaid with interest.

The NFIP now has more than 4.25 million policies representing $538 billion worth of coverage that’s in force in more than 19,000 participating communities. The national average on flood insurance premiums is $353 annually, and the average coverage amount is $124,349.

Stevens said about 25 percent of the claims processed by FEMA come from outside floodplains, which indicates “floods can happen almost anywhere.”

The maximum amount of coverage available from FEMA is $500,000 on a single commercial building, and $500,000 on its contents. Homeowners may flood-insure their homes for $250,000 and the contents for $100,000. Renters may take out $100,000 worth of coverage.

Large companies may get additional coverage from private insurers that write “all hazards industrial” policies.

Bittle, the State Farm agent, said he has recorded flood losses on the west side of town but not particularly heavy ones. He said for $20,000 worth of flood coverage, the annual premium would run about $131 and for $250,000 worth the premium could run $326.