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Better ideas needed to pay off LA insurance debt

In an apparent reversal from her view at the end of the last legislative session, Gov. Kathleen Blanco appears like she’s closing the barn door on another escaped horse, ready to chase after it. That option may be the best of a bad deal for Louisiana.

Whether through bad luck (because it had existed for such a short period of time and had not been able to build up reserves) or because its rates were kept artificially low, or both, the state-owned insurer of last resort, Louisiana Citizens Property Insurance Corporation took a beating over the 2005 hurricane disasters, running up a deficit of $825 million that had to be financed by debt to pay off claims. Current law mandates that assessments to cover this, if they don’t come out of the pockets of Citizens policyholders, come out of the pockets of every home policyholder in the state. (For an excellent explanation of how this came about, read this from state Rep. Tim Burns.)

At the conclusion of the 2006 session, some lawmakers moved to take $50 million out the newly-created state fund for emergency operations to lighten the burden of the payers a little. Blanco’s legislative leaders negated that tactic, although a provision did get in place to remove as much as that amount from the fund if it’s unspent by the end of the fiscal year.

But now it seems Blanco may be changing her mind, after various other ideas to deal with the payback have been floated such as creating a risk pool to draw from (which is substantially the situation as it now exists) to using federal recovery money (Blanco’s crew says recovery needs are too great to do that) to getting into a compact with other states to spread out the risk and payback (which other lower-risk states would laugh at). In effect, it will slightly reduce the hit for almost everybody but will otherwise punish a few.

This is because, like it or not, in some way almost every state resident pays for insurance. Owners of mortgaged property must pay it; renters pay it as part of their rent. Only those who own homes free and clear and are crazy enough not to insure the property were going to avoid paying under present law.

Taking any projected state surplus (and it’s uncertain that there will be a surplus yet) and using it to pay off part of the debt is a kind of fee placed on the citizenry because, otherwise, these funds could have been returned to them or used to provide other services (hopefully, needed ones in an efficient manner). It also avoids the real question of responsibility, which ultimately lies with those who chose to live in high-risk areas but paid below-market rates.

That Citizens’ rates have shot up reflects only the future expected risk, now perhaps better adjusted to reality, of the properties it insures. Unfortunately, that doesn’t address its past sins of artificially low rates, which otherwise will be born disproportionately by other state residents and policyholders.

Unless the state begins to think creatively about this. For example, the state could plow into this cause some nonrecurring capital outlay surplus-recognized money (they are, after all, building houses) instead of building reservoirs that do nothing for economic development. Or maybe build fewer livestock barns? Do these things and a lot of the debt could be paid off in just a few years without any assessments to unrelated parties.

Yes, and given it’s Blanco, her fellow Democrats in charge of the Legislature, and just a general surplus of good-old-boy types in state government, I’d have a greater chance of flapping my arms and flying to the moon that this occurring. Get out your wallets, Louisiana, one way or another you’re about to pay up for another populist mistake.

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