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27.7.06

Odom again puts self-interest ahead of Louisiana's

We’ve known for a long time that Agriculture Secretary Bob Odom, when making policy, does so on the basis of what’s best for Odom’s political fortunes, not what’s best for Louisiana. This week carried more disheartening confirmation of that.

A couple of days ago, Odom got approval from the Louisiana Agricultural Finance Authority to guarantee even more state money to a group that is supposed to lease the Lacassine sugar mill, built mostly by state employees whose job descriptions don’t include anything about construction work with $45 million of taxpayers’ money backed by money that is supposed to go to treat boll weevil infestations. This is on top of another $7 million loan guaranteed by another state agency.

Odom sometimes claims he’s actually got a sale pending on it all for $60 million, which could be to the cooperative that intends to lease, or maybe to a billionaire of Willie Nelson which then the lease agreement would have to go with. He can’t say for sure, but he does know that “This thing here is fixing to pop open so much.” Even better, there’s supposed to be an ethanol plant built next to it encouraged by the new state law that will force consumers to subsidize producers if the price is competitive (whether that condition actually holds true is another matter) – even though the original investor backed out inviting a state lawsuit.

26.7.06

Why doesn't Blanco push tax cuts like other governors?

Upon reading about the tremendous tax cuts other Democrat governors have delivered to the citizens of their states, you have to ask, why not in Louisiana?

If Oklahoma’s Gov. Brad Henry could give cuts in the area of $777 million in the past two years, why can’t fellow Democrat Louisiana’s Gov. Kathleen Blanco do the same? (And what about cutting by other Democrat governors including New Mexico’s Bill Richardson – a former Clinton appointee!) After all, in the special sessions after the 2005 hurricane disasters the state cut about that much from its budget – and then Blanco stumped to restore almost all of those cuts in the 2006 regular session. Why could not the cuts have been translated into tax cuts?

The states have the same basic potential. Both have a heritage as oil-producing states nad those prices are going through the ceiling now. In fact, Louisiana has more slack because (for the latest year available, 2003) it ranked 23rd in per capita revenues coming into state government, while Oklahoma was only 42nd, yet they are almost even in terms of expenditures per capita (for the latest year available, 2003) with Oklahoma being a little higher. (Teachers there even got a raise this year – and still they make less than the typical Louisiana teacher.)

This creates a situation very hard to understand. Louisiana takes in, per capita, $435 more than it spends, while Oklahoma actually spends $115 per capita more than it takes in (in 2003). Yet Oklahoma is the one cutting taxes and Louisiana isn’t?

The question is worth restating: if a state like Oklahoma, whose government draws in fewer per capita resources than Louisiana’s and is a state not much “wealthier” than Louisiana (Oklahoma’s median annual household income being less than a $1,000 higher than Louisiana’s for the latest available year, 2003) can give tax cuts equal to five percent of its revenues, why has Blanco spent her time trying to raise taxes instead of generally cutting taxes?

Yesterday, Henry got renominated to run for reelection later this year. Next year, Blanco seeks reelection. Maybe it’s time Blanco got with the program.

25.7.06

Louisiana insurance tussle has national implications

Apparently, the attempt by Allstate Insurance to drop wind and hail coverage on roughly 30,000 homes in the Louisiana coastal parishes has ramifications that far exceed the state’s boundaries.

RS 22:635.3, Allstate claims, allows it to withdraw certain kinds of coverage even if the stipulation of two catastrophic storms in three years has yet to be met (in the same place; Katrina and Rita were not). Insurance Commissioner Jim Donelon says the law (only Louisiana has such an interventionist law) cannot be interpreted the way Allstate argues, which is that there is a difference between cancelling and nonrenewal and with changing a policy endorsement.

The semantics seem destined to head to court if Allstate carries out its plan at the beginning of next year. And, a reading of the statute indicates that Allstate may be able to claim there has been a “material change in the risk being insured,” especially given that hurricane forecasters universally recognize that a more-active phase of hurricane activity in the cycle has been reached and that improved prediction methods may indicate that past risk was understated.

But by backing off its claim that the second-largest insurer would leave the state unless it could follow through on this, Allstate indicates that its basic homeowner insurance line is too profitable to pass up. Then why push the issue and get Donelon all ginned up about it during an election year, if it’s just throwing the dice hoping to get a better outcome?

This is because Allstate’s move appears to be part of a larger campaign to spread risk out to the Louisiana or American taxpayer. Speakers on its behalf hint that the real solution to it would be to create a state or, better for them, a national risk pool for high-risk homeowner insurance. In short, rather than have the companies and their policyholders responsible for their decisions, make those who have no connection at all to the company, who perhaps decided so exactly on the basis of risk avoidance, bear some of the risk.

To allow this would be a travesty. There’s no good reason why somebody in Alaska, or Hawai’i, or North Dakota, or north Louisiana ought to subsidize somebody who wants to own and insure a house in certain high-risk places in Louisiana – or that a Louisianan would subsidize risky residences in those other states. If you want to take the risk, it’s your responsibility to pay for it, not that of others entirely unrelated to the process.

One hopes Donelon, Gov. Kathleen Blanco who also has rapped the company, and a number of other Louisiana policy-makers don’t get sucked into this pipe dream of spreading the risk to unrelated parties. Not only does it abrogate the idea of self-responsibility, but it’s just not going to happen: you can bet that in the majority of congressional districts, and maybe even in the majority of states, there will be net losers in the subsidization game and this will go nowhere in Congress. So they need to do what’s possible and not waste their time and efforts.

(Of course, subsidization already is being practiced in Louisiana. Ratepayers currently, and perhaps in the future taxpayers, are being forced to make up losses by the state’s entity, Louisiana Citizens Property Insurance, which insures where nobody else will, even if they live in low-risk areas and bought policies through companies with low exposure to the ravaged regions of the state.)

The best solution would be for the state to steer insurance with as light of a hand as possible, giving the free market maximal latitude to determine rates without provider collusion. One very good first step would be getting rid of RS 22:653.3 at the first opportunity and thus maybe save the state some dollars in defending it in court.

24.7.06

Donelon campaigning aggravates insurance problem

Louisiana Insurance Commissioner Jim Donelon has got himself put between a rock and a hard place courtesy of a silly state law, but that’s not stopping him from using the situation to try to boost his campaign fortunes.

Last week, the unelected official who ascended to his place when his predecessor resigned, received unpleasant news from Allstate Insurance, representing one-fifth of home insurance policies in the state. It wanted to drop hail and wind coverage from a little over seven percent of its homeowner policies, presumably in the high risk area on the coast. The trouble was, a law unique to Louisiana prevents any company from doing this unless there have been two catastrophic events within a three-year period. If it could not follow through, the firm said it would exit the market.

Simply, even if the company is reporting decent profits, it fears that another hurricane striking the coast, which would then qualify it stop writing such policies, this or next year could wipe out those profits and eat into reserves. Thus, it would rather leave the market. If that happened, this potentially could foist huge costs on Louisiana taxpayers because, since no new underwriting by major firms is occurring for those kinds of policies, those homeowners might be forced into having policies written by Louisiana Citizens Property Insurance. These are more expensive, by law, and if a disaster does occur and it must pay out, other ratepayers or even taxpayers would be on the hook to subsidize payouts.

This scenario doesn’t necessarily have to happen. If smaller insurers are willing to step up, they might get some chunk of this business. However, they probably would come in at a substantially higher rate. And, since the conflict is likely to drag out past hurricane season, it may become moot since Allstate talks of doing this for next year’s policies. That outcome would entice major insurers possibly to write new policies. Perhaps most frustrating to Donelon, there’s nothing he can do about this because only the Legislature could amend this law; he has no power to make exceptions to it.

Yet, he has rattled sabers about the situation, declaring the state intention to leave is “blackmail” and trying to introduce class warfare into it by noting the profits of the company. It’s grandstanding that is unneeded and likely prompted by the election he will contest Sep. 30. Not having been elected to the office and thus possessing little legitimacy, by talking tough Donelon may think he’ll come out looking like a champion for insurance customers, many who will vote.

Perhaps, but it also shows that he’d just as soon ratchet up the crisis through a war of words than to quietly work behind the scenes. Blasting the company only aggravates a conflict which could lead to a major loss of choice for Louisiana consumers. (Separately, it shows how counterproductive this law is and reminds everybody that public policy choices must be made; is it the responsibility of homeowners’ own resources or taxpayers’ subsidies to permit those homeowners to choose to live in certain parts of the state?)

Donelon chose poorly in putting his campaign ahead of his job.

23.7.06

If Malone stays out, GOP has better shot in Shreveport

The all-but announced entry of Liz Swaine into the Shreveport mayoral derby probably sets the major-candidate field for the 2006 contest. While state Sen. Max Malone has said he will let everybody know by qualifying (Aug. 9-11) whether he will be a candidate, it seems unlikely, for two reasons.

First, for a Sep. 30 primary launching officially a race for mayor leaves it a bit late; Malone really needs to start media buys prior to then and there’s no evidence of that. Also, with Swaine’s entry the field has become more fragmented, and the reality of electoral politics for this contest is that a late entry of a quality candidate such as Malone not only would not leave him with much of a chance against other quality candidates, but it would decrease the chances of white candidates as well.

Until the primary, the Shreveport electorate needs to be conceived as participating in two distinct contests. There will be little crossover voting in the primary, especially with so many candidates appealing to identifiable segments of the electorate. Thus, state Rep. Cedric Glover and television executive Ed Bradley will almost exclusively divvy up the black vote (newcomer Madjun Ali will receive little of this vote), while Democrat Swaine and Republicans former city official Jerry Jones, current city official Arlena Acree, and retiree Vernon Adams will divide the white vote, roughly in that order.

The two black candidates must share about half of the electorate, while four white candidates must share the roughly other half. As the number of white candidates increases, the odds lengthen that any one of them would exceed the primary vote of both black candidates separately. So, a Malone entrance would make matters worse for all white candidates, most of all for Jones who has picked up support from most Republican Party regulars and most conservative activists.

Swaine’s entrance hurts Acree and Glover the most. White Democrat loyalists without a standard-bearer would have been most likely to gravitate in those directions, but now have Swaine to support. The domino effect it produces also assists Bradley and Jones, by pulling away relatively more support from Glover and Acree.

However, Swaine probably does not have enough upside to make it into the general election runoff. While she likely will head up the list of choices of the dying breed of moderate white Democrats, liberals probably would move to Glover and conservatives to Jones (and almost all blacks going for Glover or Bradley), leaving her too few votes. Her best strategy will be of mobilization; no candidate will do better among occasional voters whose decisions on candidates rest mainly on name recognition and positive affect towards a candidate, not from any study of issues.

Bradley’s chameleon campaign might have been adversely impacted by Swaine’s entrance, but apparently a decision was made there long ago to build as his coalition’s chief base blacks attracted by the playing of the race card, evidenced by his initial refusal, then reluctant disavowal of racist propaganda belittling black politicians who chose to build coalitions with whites. Whether this “blame whitey” chunk of the electorate is enough of a core on which to make a runoff, however, is questionable.

Nevertheless, Swaine’s entry has made Bradley’s prospects noticeably brighter, although Glover still has the edge as the “black” frontrunner. Jones has solidified his status as the “white” frontrunner by her entry by virtue of activist support and resources on hand that will get his message out. Malone’s throwing his hat into the ring, however, not only would divide the Jones vote, but probably would create a situation with two blacks in the runoff in a city where blacks make up less than half the electorate.

The proportion of the electorate comprised by the different races that vote will be the key to the eventual winner. At this point, a Glover-Jones runoff seems the most likely. In any black Democrat/white Republican scenario, crucial would be registration in the city at the end of August and relative turnout. Statistics suggest that white registrations will lag non-whites by about 2,000 by then, but keeping in mind that white turnout exceeded non-white turnout in the 2002 primary by 2.5 percent, this indicates such a runoff would be very close indeed. In this scenario, the quality of campaign organizations becomes most critical and every vote will count.