I see #1 differently; the property owner would get an exemption IF the property has been 'improved' to resist flooding. I see it as an incentive to those that own property that is prone to flooding to make improvements; thus in a long run saving the other taxpayers money.
But ... how does one make improvements to a piece of property to make it less flood prone???
I don't see it that way. The way I read it, the STATE is ALLOWING the local area to lower LOCAL taxes on the property. WT#?
As to your question, you raise it. Where I live, if you make improvements that raise the property value more than like 50%, you have to raise the property (house) like three feet.