Substantial Damage

Substantial Damage – You Have Questions, We Have Answers

Cleighton Smith, PE, CFM
Taylor Wiseman & Taylor
smithc@taylorwiseman.com 

Why Are We Doing This?
The National Flood Insurance Program (NFIP) was created in 1968 to allow for previously unavailable flood insurance policies to be written in communities that agreed to adopt and enforce a Flood Damage Prevention Ordinance. The key principles were, and still are:

• Regulate new development in the floodplain, based on maps provided by FEMA
• Replace older building stock over time with structures that comply with the ordinance.

The second bullet is the key, because if we allow our older buildings to continue to flood, we are perpetuating the “flood →rebuild →reflood” cycle.

FEMA requires communities to perform damage assessments after a flood for all structures in their floodplain. If the damages are estimated to be “substantial”, meaning the cost to repair to the pre-flood condition is greater than 50% of the market value of that structure, the structure is required to rebuild in such as way as to meet requirements for new construction. If this process were universally applied, we would not have a repetitive loss problem in the NFIP today.

Whose Job is It?
It is the primary responsibility of the Floodplain Manager, however he or she may use whatever tools, mutual aid agreements, consultants available to them to carry out this work. FEMA recognizes this can be a large undertaking and has created a Desk Reference to be used for this work: https://www.fema.gov/sites/default/files/documents/fema_nfip_substantial-improvement-substantial-damage-desk-reference.pdf.

How Do I Do It? 
The actual calculations are facilitated by software created by FEMA found here. This tool can be used to generate damage estimates based on post-flood field work. Data needed are type of foundation, type of building, depth of flooding above the ground outside the house, depth of flooding above the first floor, location of various utilities that serve the building and the estimated extent of damage of these. Checklists can be developed for use by the field team. The software tool has an accompanying field workbook, which is very helpful in developing these estimates. These estimated damages are used to compare with the building’s market value. Tax records are useful, because they separate the building value from the land value (the substantial damage calculation is based on building only, not land value). The damage estimate is divided by the building value to obtain a percentage; if it is over 50%, the building is considered substantially damaged. The Substantial Damage Estimator (SDE) software does a great job of gathering this information and generating a one-page summary sheet to be attached to a letter to the property owner.

What is the End Product?
The substantial damage (SD) letter is the most important part of this process. It typically is a one-page letter, with two paragraphs. The first states that building at this address has been substantially damaged and gives the basis for that determination (e.g. SDE software, community tax records, etc.). There should be a sentence stating that his is an estimate and they have the opportunity to submit actual repair data, which could revise this determination. The second paragraph focusses on what this means to the homeowner. To obtain a new Certificate of Occupancy, the reconstruction must meet current design standards. This paragraph might have information about what steps they should take if they want to be bought out, or information on filing for Increased Cost of Compliance (ICC) if they plan to elevate. Lastly, there should be a point of contact for the recipient of the letter to contact if they have questions (and they will!). The letter should be signed by a high-ranking community official (mayor, administrator, etc.). The one-page summary from the SDE software needs to be attached. 

What Does This Mean for the Property Owner?
It depends on the property owner. If they are interested in a buyout, it might prioritize them ahead of others. SD structures can receive waiver of a Benefit-Cost analysis for some FEMA grant opportunities. If they choose to elevate, and they have NFIP flood insurance, they can obtain an extra $30,000 on their insurance, through ICC coverage. The SD letter is a key document the insurance company needs to release the ICC funds. If they believe they are under the 50% threshold, they can submit actual repair bills. One thing to keep in mind, however – if the homeowner did the work himself or herself, we need to factor in the true cost as is a contractor did the work. The same is true of any donated materials.

Is That It?
These are some of the basics of the SD process. One question that comes up is why is one community doing them and not the neighboring community that was hit by the same flood? That is not so easily answered. The process is a basic NFIP community responsibility. However, it is not always the top enforcement priority of FEMA and State NFIP staff. Another item worth noting -- for Community Rating System (CRS) communities, there are credit points involving the SD process. Creating an SD plan (pre-populating the SDE software with properties in your community floodplain), modifying your ordinance to arrive at the SD threshold sooner, either by adding together past storm (cumulative damages), or by lowering the threshold below 50% are credit-worthy activities. See the CRS Manual for more information.

If you have any questions about the SD process or the SDE software, contact the author at smithc@taylorwiseman.com.