La. Gov. Runs Into Opposition for Insurance Rate Relief Plan

October 16, 2006

Opposition began lining up almost as soon as Louisiana Gov. Kathleen Blanco announced her plan to bail out the state-run property insurance company, which is financially strapped after last year’s hurricanes.

“Clearly there is uniform agreement that we need to do something to eliminate this problem,” said House Republican caucus chief, Rep. Jim Tucker.

But that’s where the agreements end.

While lawmakers are overwhelmingly in favor of a relief plan for the Louisiana Citizens Property Insurance Corp., there is disagreement about how to dig up the money to do it.

Republican lawmakers say Blanco’s plan creates unnecessary debt; state Treasurer John Kennedy said there’s enough existing state money to cover the bailout costs; and higher education and health groups are expected to object to tapping into tobacco settlement dollars that currently fund their programs.

Citizens borrowed $1 billion to pay off claims after hurricanes Katrina and Rita. The company – established by the state to offer property insurance to those who can’t get it on the open market – is assessing private insurance companies a regular fee they can pass onto all their Louisiana customers to pay off Citizens’ borrowing. If lawmakers and the governor pay down Citizens’ debt, homeowners and businesses would face smaller insurance hikes.

Blanco outlined her rate relief idea earlier this week. She proposes using part of an expected budget surplus and one-third of a $150 million state emergency fund to provide short-term relief for Citizens – and to send refund checks to cover a one-time 15 percent insurance premium surcharge assessed on policyholders earlier this year.

To cover the rest of Citizens’ debt, Blanco proposes selling the 40 percent remainder of the state’s share of the national tobacco settlement, which involves selling bonds to investors and creating more state debt.

Tucker said the governor’s plan already is doomed. If the Republicans vote as a block, they have enough lawmakers to keep Blanco from getting the two-thirds vote she needs to use the tobacco settlement dollars for insurance relief.

“The governor’s proposal to use the tobacco trust is dead. It’s going nowhere. It’s perceived as taking one credit card and paying another credit card with it,” said Tucker, R-Terrytown.

Blanco said the tobacco money is needed to cover the costs of long-term insurance relief. If lawmakers approved using the tobacco settlement for Citizens, it also would require a statewide vote because it is a constitutional change.

Kennedy, who sits on Citizens’ board of directors, said the surplus from the fiscal year that ended June 30 could be anywhere from $400 million to $800 million when it’s formally recognized in the coming months. The state also is expected to have more cash available in the current fiscal year.

Kennedy, a Democrat, and Republican lawmakers say the surplus, the entire $150 million emergency fund and extra dollars from the current budget year could be used to shore up Citizens.

But Blanco said the state’s surplus dollars will be needed for other areas, like health care and hurricane recovery.

“We can’t just use the whole surplus exclusively on insurance right now. We have other needs,” said Blanco spokeswoman Marie Centanni.

Besides lawmakers who have problems with the debt created by Blanco’s plan, other lawmakers won’t want to vote to strip tobacco settlement money that currently pays for health care and education programs, like the state’s free college tuition program known as TOPS, Tucker said.

“Those constituencies have support in the Legislature,” he said.

The Republicans intend to send out a petition Oct. 16 to try to call the Legislature into a special session – to deal with Citizens’ debt and other matters – according to Tucker.

Historically in Louisiana, the governor calls special sessions, but Tucker said the insurance problem is too important to wait and see if Blanco plans to call a special session or wait to deal with it in the 2007 regular session, which begins in April.

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