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By FRANK KEEGAN — Picture 10 catastrophes the magnitude of Japan’s earthquake, tsunami and nuclear power plant failures. Now picture millions of Americans who thought their states had set tax money aside to help them recover only to find out politicians looted the funds instead.
That’s where America stands right now when it comes to state catastrophe funds, according to a Government Accountability Office report: Natural Catastrophe Insurance Coverage Remains a Challenge for State Programs.
It is a huge challenge. GAO “reviewed state natural catastrophe insurance programs” in nine states and found almost $3 trillion in “combined total exposure” that taxpayers are — not might be — on the hook for when — not if — catastrophes happen.
And happen they do, as the earthquake, tsunami and nuclear plant failures in Japan prove. Total loss in that unlikely devastating cascade of disasters is estimated for now at more than $300 billion.
So actuarially speaking, we are hanging out the equivalent of 10 of those. Florida is worth two thirds of that at $2 trillion for both of its programs. Gee, what are the odds Florida will get hit by hurricanes?
This is the calculation by people who figure probability of bad things happening with an accuracy that is spooky. They then tell insurance companies how much to charge for premiums to cover losses.
When it comes to catastrophic loss insurance in some areas, insurance companies say no thanks; won’t do it. Nobody could afford the premiums.
So government steps in to subsidize risky lifestyles with taxpayer money and spread losses to areas not at risk.
In the case of state catastrophe funds, they are supposed to charge premiums and invest the money to pay for at least part of it.
According to GAO, they don’t.
The study looked at Alabama, California, Florida, Louisiana, Mississippi, North Carolina, New Jersey, South Carolina and Texas. “We found that most of the state programs … had grown since 2005. In particular, the insurance programs in Mississippi, Texas and Florida experienced the most growth in total exposure to loss …, with increases of 495 percent, 147 percent and 146 percent, respectively. …
“Six of the 10 programs charged rates that did not fully reflect the risk of loss, potentially discouraging private market involvement and mitigation efforts by property owners. However, charging rates that do not fully reflect the risk of loss can also potentially increase broad-based participation in state programs.”
Good policy: Let us contrive a government program that creates a false sense of security encouraging more development, and less mitigation effort and private insurance coverage in the highest risk areas.
According to GAO, this “can put state finances at risk in the event of a major natural catastrophe,” and shift costs “from states to the federal government.” That means all American taxpayers.
The GAO study doesn’t even include all states. Take Hawaii.
There, right now, a bill that “appropriates funds from the Hawaii hurricane relief fund to the general fund for the purpose of balancing the state budget in fiscal year 2011-2012” is moving through the state legislature.
Of course, it calls for payback next fiscal year. Why exactly legislators in this bankrupt state think they will have the money next year is a mystery.
It’s just one more example of states pushing unavoidable costs onto future taxpayers.
Across the country governors and legislators have done it with false retirement benefit promises, deferred capital projects, sucker-bet deals with Wall Street, bonds for recurring expenses, neglected “self-insurance” premiums and an array of other accounting tricks that allow them to claim “balanced” budgets until they can flee the scene of their crimes enriched at public expense.
Looting the Hawaii hurricane fund is especially heinous because the state took the money “from policy holders, from property & casualty insurers, and from mortgage recording fees … for a specific purpose,” according to written testimony submitted March 14 by the Hawaii Independent Insurance Agents Association.
They also said, “The forecasters tell us it is a ‘when’ a hurricane hits and not an ‘if’ hurricane hits.”
Given millions of dollars in damage to Hawaii from the Japan earthquake tsunami just two weeks ago, how can state leaders pretend nothing bad is ever going to happen?
As GAO reports about the states it studied, “Reliance on post-event funding, by concentrating risk within the state instead of the broader private market, can put state finances at risk in the event of a natural catastrophe."
With state finances already at risk from truly historic public misfeasance and malfeasance, taxpayers now must deal with catastrophic failure of leadership.
Frank Keegan is a national editor for The Franklin Center for Government and Public Integrity, watchdog.org and statehousenewsonline.com . Any disgusted public employee, journalist, activist organization or citizen watchdog who wants help exposing government waste, fraud and abuse may contact him at: frank.keegan@franklincenterhq.org
