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If you think Louisiana has had budgetary problems before ....

The wages of the political hacks on the board of the Orleans Levee District, and of those local and state elected officials who put them there, are about to cost taxpayers and/or homeowners huge sums of money.

Lawsuits already have come concerning the design and quality of construction of certain levees which gave way under the duress of Hurricane Katrina. In the coming months, researchers likely will confirm that preventable design errors and subpar construction efforts allowed the flooding to occur. Plaintiffs believe that without this negligence that they would not have lost most of their possessions and use of their homes.

For many, the problem is they did not have any flood insurance and regular homeowner insurance normally would not pay for these damages. While as a practical matter it would make sense for anybody living below sea level to have it, about half of New Orleans homeowners including those in this category did not. This creates a massive public policy problem for government because it, and the public, would resist any suggestion that those in the situation just suck it up and live with their short-sightedness.

This being the case, then either government socks it to the taxpayers to pay for most everything, or it tries to pass off the expenses to insurance companies anyway for policies they didn’t write and didn’t get premiums on. (Don’t even think about the consequences about a successful suit charging state government officials with violations of civil liberties for short-sighted policy-making.) The former would make a lot of voters angry, especially those affected by the flooding who did have flood insurance and paid for it, and who now would have to pay for somebody else’s retroactively at a far higher rate, in essence.

But the latter won’t work, either, because if the state ever attempted this, few if any insurance companies ever would want to write policies in the state again. Even if they did stay, rates would go sky-high to compensate, making homeownership prohibitively expensive and further battering the state’s fragile economy.

This investigation adds another wrinkle because the policy decision well may get ripped out of the state’s hands because if the initial suspicions become confirmed, the state will have no choice but to pay out a gigantic sum of money to participants in a successful class-action suit. Say if 100,000 homeowners with a home at an average value of $100,000 plus 1,000 business owners with properties worth on average $1,000,000 (including apartment complexes) were part of this. That’s an $11 billion hit to the state, or more than half of its 2005-06 operating and capital outlay budgets.

With this hanging over the state’s head, if you think Louisiana’s had budget problems in the past, you haven’t seen anything yet – nor the political courage to deal with this.

1 comment:

Mr. Hyde said...

Man, what a mess. But certainly no surprise. The fed-bashing will be long forgotten before we finish finding all the local incompetence that was really responsible for this.

I'm glad I'm out of Louisiana now. I left shortly after finishing college because of the lack of opportunity. I see you're right on the edge. Shreveport is almost Texas anyway, so it's at least a short drive to sanity.