Fla. House Proposal Would Use Full Surplus to Mitigate Citizens Deficit

April 19, 2006

Nearly $1 billion in state tax dollars would go to offset the deficit faced by Citizens Property Insurance under an amendment approved in Tallahassee, Fla. by a House panel that would help out Florida homeowners who are facing having to bail the company out.

A Senate committee approved a similar amendment, but proposed to spend less money, leaving homeowners to pick up a little bit more of the tab for the company’s shortfall in the form of surcharges on their property insurance premiums.

Citizens, created by the state to cover people who can’t get insurance from private companies, came up short the last two years. That’s a problem for all Florida homeowners, because that shortfall is passed on to them in the form of a surcharge on their homeowner’s policies. Homeowners are already paying a 6.8 percent assessment for the company’s 2004 shortfall, and a current $1.7 billion deficit means they could face assessments near 20 percent.

For the average homeowner with $1,000 in premium, the assessment would be just under $200.

The House budget committee chairman, Rep. Joe Negron, on Monday proposed an amendment to a wide-ranging insurance bill that would earmark $920 million from the state’s general fund to offset the Citizens deficit. Under the plan, the shortfall would also be made up over the next decade, further allowing the assessment to be lowered to where homeowners would have a much lower surcharge. Under the amendment, the homeowner with $1,000 of premium would pay only about a $10 assessment a year over the next 10 years.

The amendment was approved unanimously by the House Fiscal Council, which then approved the bill 13-4.

“The Citizens assessment is a back door tax increase,” said Negron, R-Stuart. The bill still needs approval from one more committee before it can go to the full House.

Negron came up with the money by deciding to give up a plan for a broad six-day tax holiday that would have exempted the first $5,000 of any item from sales tax, an idea that would have cost nearly a half billion dollars.

Negron said the Citizens assessment had proven to be of greater interest to Floridians.

“I’ve listened to my constituents,” Negron said. “There’s much stronger support in the public for (fixing) Citizens.”

But lawmakers also can more easily afford to spend tax money to bail out Citizens because they learned last week that incoming taxes will be an estimated $960 million higher than earlier forecast.
That played into a decision on the Senate side to put money toward the Citizens deficit.

The Senate Ways and Means Committee approved an amendment Monday to its hurricane insurance bill that would send $750 million of the windfall toward bailing out Citizens, less than the House, but still enough to allow for a far lower assessment than without it, likely leaving Florida homeowners to pay an assessment of about 2.5 percent. The Senate would also spread the cost out over several years.

Senate Insurance Committee Chairman Rudy Garcia, R-Hialeah, said the amount his chamber will spend isn’t final, however, and that he would be willing to increase the amount if possible.

“I do know that the biggest crisis in Florida is this,” Garcia said.
Several members of the Senate panel suggested putting as much of the extra money as possible into reducing assessments.

“Manna from heaven came and we have this money,” said Sen. Jim King, R-Jacksonville. “I think it would be irresponsible for us to have this money and then go out and charge an assessment of two-and-a-half percent.”

The Senate bill, with the $750 Citizens bailout, was approved by Ways and Means 13-1.

Trying to reduce the assessments is a top priority for lawmakers because they acknowledge there’s little they can do in the short run to stop underlying property insurance rates from going up. And in fact, both Senate and House bills would allow for property insurance companies to more easily raise rates, up to 5 percent. The idea is that without the ability to do so, many companies won’t do business here.

With predictions of a heightened period of hurricanes, and private insurers spooked by eight hurricanes in the last two years, nearly everyone predicts that basic premiums won’t come down any time soon.

Both measures try to reduce future deficits at Citizens, by either charging more for insuring certain properties, such as those that would cost more than $1 million to rebuild or by removing those from Citizens coverage. Both also aim to shore up housing in Florida, setting aside money for making houses better able to stand up to hurricane winds.

Some lawmakers have said, however, that the bill doesn’t do enough to address underlying problems in the state’s insurance market, including how to make it more attractive for companies to take on policies here and how to make sure insurers can afford reinsurance.
Sen. Rod Smith, D-Alachua, the only Senator to vote against the measure on Ways and Means, was one who said the bill doesn’t go far enough.

“For me this was really a Band-Aid over a major problem and was an inadequate response,” Smith said.

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