Out of the Storm News
National Public Radio’s Marketplace This Morning recently ran a piece on its show highlighting an in-depth investigation by the Center for Investigative Reporting that focused on the ability of U.S.-based companies to legally evade paying taxes on the profits earned from their overseas operations.
The story presented a picture of U.S. corporate behavior that no doubt left many people indignant both over the porous nature of the tax code as well as the perfidy of the U.S. corporations that, it alleges, are exploiting loopholes to deny the U.S. government much-needed revenue.
The sheer outrage that the story’s attempting to generate raises a question: is there another side to this? Since the Center for Investigative Reporting alleged that it couldn’t find anyone willing to go on the record to defend the ability of U.S. corporations to defer the payment of taxes on foreign-earned income, allow me to do so.
The United States is the only country in the 33-nation OECD that requires companies to pay taxes on income earned abroad. The other countries exempt this income for a simple reason: it allows their companies to be more competitive abroad, and that is ultimately a good thing for their country and the companies headquartered in their country.
A U.S. company operating in France does pay corporate income taxes to France on its income earned there—something the report inexplicably failed to mention. U.S. companies that do not defer bringing that income back to America must then pay U.S. taxes on top of the taxes paid to France. This means that U.S. companies operating in France pays an effective tax rate of nearly 40 percent (the highest in the OECD) while a company from nearly every other country pays the French tax rate of only 25 percent on those profits.
As a result, the U.S. company finds it more difficult to compete in this market, and its overseas operations will be smaller—as well as its U.S. operations, as it will need fewer support staff in IT, logistics, marketing, and management to support its smaller overseas operations. Allowing U.S. companies to defer paying U.S. taxes until they are repatriated allows them to narrow the tax gap between them and their competitors.
Sen. Carl Levin, D-Mich., whose report was mentioned, alleges that if U.S. corporations do not face the same (high) U.S. tax rate on their foreign and domestic operations then they will move domestic operations overseas to take advantage of lower tax rates, but there’s little evidence of that occurring. However, there is a great deal of evidence that companies that locate operations abroad usually do so in order to service local markets by producing low-margin goods close to where they are being sold. Without deferral, Pepsi is not going to produce soda and chips in the United States and ship them across the ocean to Poland: they’re more likely going to divest their Polish operations. How does that help the United States?
How we tax U.S. corporations abroad is a complicated and contentious topic that’s currently at the heart of attempts to reform the U.S. tax code. To present deferral as merely some kind of tax scam that U.S. tech companies are pulling on the Treasury while not offering any sort of rebuttal amounts to agitprop.
Floridians would face about $7.19 billion in post-hurricane taxes to make up the funding shortfalls of state-run Citizens Property Insurance Corp. and the Florida Hurricane Catastrophe Fund should even a 1-in-50-year storm hit the state – a tally that could grow up to $23.9 billion in the case of a much stronger storm – according to new projections submitted to the state Legislature by the Florida Financial Services Commission.
Those figures do represent some progress since 2008, when the state’s insurance programs faced their deepest financial holes. Back then, in the wake of former Gov. Charlie Crist’s market-destroying “reform” legislation, the Cat Fund’s shortfall alone was estimated to be $21.4 billion for a 50-year storm and $25.8 billion for a 100-year storm, compared with $7.15 billion today.
Citizens, which has been slowly building up its private reinsurance protection with a combined $1.75 billion package of traditional and catastrophe bond coverage this year, has seen its assessable shortfalls drop even more dramatically, down just under half to $16.76 billion for a 1-in-250-year storm, just over half to $4.14 billion for a 100-year storm and by more than 90 percent to just $46 million for a 50-year storm.
Despite that progress, the prospects still aren’t very sunny in the Sunshine State. The projections for Citizens, in particular, almost certainly paint an unjustifiably rosy picture. That’s because the Financial Services Commission assumes that, in addition to the $6.38 billion of surplus it is projected to hold at year’s end, Citizens would be able to recover $6.05 billion in reinsurance it would be owed by the Cat Fund itself.
It takes just a glance at the Cat Fund’s projections to see the problem with that assumption. The Cat Fund, which provides $17 billion of mandatory coverage to the Florida residential property insurance market, faces probable maximum losses of $54.93 billion in the event of a 100-year storm or a truly staggering $82.42 billion in the event of a 250-year storm.
But speculating about those larger scenarios is, in a sense, utterly irrelevant, when even a 50-year storm, with a PML of $37.25 billion, would wipe out the fund completely. Even that relatively modest sized storm would require the fund turn to the capital markets to fund its full $7.15 billion shortfall. And as the fund’s own management and advisors have been warning for some time now, that is simply not likely to go well. The Financial Services Commission itself notes in the report that “it is uncertain whether the FHCF could in fact complete a bond issue or series of bond issues of the size necessary to pay all covered losses at assumed interest rates or at any interest rate in a timely manner.”
If long‐term bonding in sufficient amounts is not immediately available, the FHCF would need to explore alternatives, including the levying of emergency assessments with no financing, a staged financing schedule and/or interim financing alternatives. The FHCF statute provides that the FHCF’s liability is limited to the amount it can actually raise from bonding and other available claims payment sources.
To translate that into terms everyone can understand, if the Cat Fund can’t raise the amounts it needs to pay all of its claims, it can, by law, simply shirk that responsibility. And that includes its more than $6 billion responsibility to Citizens.
Bearing those concerns in mind, the worst case scenario for Florida isn’t $7 billion in new taxes, or even $24 billion in new taxes. The worst case scenarios is that state lawmakers aren’t able to find the political spine to pass real reforms before the next storm hits, and takes down the entire insurance market with it.photo by: stevendepolo
Coming on the heels of a major deal that transferred 31,000 coastal policies and $30 billion in gross exposure to private start-up Weston Insurance Co., Florida’s state-run Citizens Property Insurance Corp. is moving to shift even more risk to the private sector with a planned $250 million catastrophe bond issuance.
This will be Citizens’ second dip into the cat bond waters, following last year’s record $750 million Everglades Re transaction. And it also marks 2013 as the second year in a row that Citizens will boost the total amount of risk it transfers to the private reinsurance market, which has the added benefit of reducing its reliance on the also-shaky Florida Hurricane Catastrophe Fund.
In 2011, Citizens bought $575 million of private reinsurance, a total it nearly tripled with last year’s $1.5 billion. With the most recent cat bond transaction, Citizens now targets its 2013 reinsurance program at $1.75 billion, which could include another $250 million cat bond issuance at some point this year and as much as $750 million in traditional private reinsurance.
In other good news, another major player also has entered the depopulation game, as Bermuda-based Axis Capital is backing a start-up take-out insurer called Qorval that will be led by former Citizens President Bob Ricker. It’s not yet clear if Qorval will look for take-outs of the same size as the Weston deal, but it’s fair to conclude from these trends that the private market’s appetite for Florida risk is growing.
However, it’s important that state lawmakers not draw the wrong lessons from these encouraging developments. Citizens is still too big. It still charges too little. And state residents – both the roughly one-quarter who are Citizens policyholders and the three-quarters who are not – would still be on the hook for big assessments the next time a major hurricane barrels across the Florida peninsula.
As detailed in a recent Sun-Sentinel piece, Citizens’ coastal account would face up to $14.8 billion in claims should a 1-in-100-year storm hit South Florida. Its claims-paying resources for such an event include about $3.997 billion in reinsurance from the Florida Hurricane Catastrophe Fund (which has solvency concerns of its own) and about $2.91 billion in cash reserves. The latter category includes Citizens’ obligations to pay roughly $444 million under the 10 percent quota share it would owe under its Cat Fund reinsurance, as well as $686 million to pay commercial and nonresidential policies that aren’t covered by the Cat Fund.
An additional $191 million would be raised through assessments on Citizens existing policyholders and $1.5 billion could be recovered under the reinsurance package — half-cat bond, half-traditional — it placed last year. Once the private reinsurance was used up, Citizens policyholders would then be hit up again for a second round of assessments estimated to be about $397 million.
But that would still leave Citizens with about $5.8 billion in unpaid claims, at which point, it would be forced to borrow money in the capital markets. To pay off these post-event loans, the first step would be to raise $620 million through 2 percent assessments on non-Citizens homeowners policies. For the remaining more than $5 billion, assessments would be laid on policies for cars, businesses, pets – essentially every property/casualty insurance policy in the state except workers’ comp and medical malpractice – and those assessments could persist for as much as a decade. Floridians still have $1 billion in remaining assessments to pay from the 2005 hurricane season, and that was before Citizens’ massive legislative expansion in 2007.
By no means should the recent spell of good news make state lawmakers complacent about shrinking the size of the state’s insurance mechanisms, both Citizens and the Cat Fund. The progress is encouraging, but it all could be wiped away in an instant.photo by: Xurble
Most of the attempts to fix Michigan’s long-time Essential Insurance Act have ended as spectacularly as the meteor which exploded over the Ural Mountains town of Chelyabinsk a few days ago, injuring over a thousand stunned residents of central Russia. A huge proportion of all accident injuries and fatalities are suffered by people driving or riding in various kinds of vehicles. Obviously, there are many interested parties to the process of sorting out who pays for what kinds of medical treatment, rehabilitation and compensated damages.
Most state laws do and always have featured upper limits in the policy for medical care resulting from crashes. Three states provided unlimited coverage and only Michigan still offers this expensive version of auto insurance. To pay claims for damages in the truly catastrophic cases, a private, non-profit fund –-the Michigan Catastrophic Claims Association–manages the major claims, since “unlimited,” in this case, refers to both length and severity. The association is itself managed by a board of property and casualty insurers doing business in Michigan, and charges a surcharge to raise the necessary revenue to pay the claims.
Separately, Michigan has recently levied a 1% surcharge on claims paid by health insurers, which was supposed to raise about $400 million annually, but has not.
Now the threads might be coming together to produce some needed reform. It appears that state lawmakers may be ready to accept the insurers’ argument that actuaries do not deal well with anything that is unlimited, because it loosens up the sophisticated guesses about what rates ought to be to stay in business. Some number will be picked as a cap, and I’m guessing it will be between $1 million and $5 million, because that will cover something like 95% of the cases. A new MCCA may be set up under new financing and with the new limits, if agreement can be found that a consortium is still the best way to handle catastrophic cases. Cases handled by the existing association will run on for years under the system in which they were created, until there are no more cases left.
Some cost containment will be have to be selected as an element, and a medical fee schedule such as those used typically for Medicaid or workers’ comp is likely. Some of the money saved will keep auto insurance rates from rising as fast as the cost of medical procedures and devices, with the rest will be used to shore up the MCCA’s deficit, as the new claims surcharge has not delivered revenue as reliably as projected.
Any true reform would have to address the worsening and expensive problem of how to compensate for home health care, as well, which is mostly administered by unlicensed friends and relatives.
In the legislative arena, it is always possible that a fight will erupt over some hitherto unexamined, but linked requirement of the federal Affordable Care Act, or family planning, or compensating people who suffer nightmares but present no physical injuries. There are lots of reasons that proposed solutions don’t look as promising to all the actors in a major legislative production.
But if one adds in the backing of the governor’s office and a couple of experienced and thoughtful insurance committee chairs working with their committees on this while Medicaid red ink is sloshing all over the landscape, I think this might be the year.
This coming Sunday, the Academy of Motion Picture Arts and Sciences will award its annual Oscars, with Steven Spielberg’s acclaimed “Lincoln” — a look at the 16th president’s work to abolish slavery with the Emancipation Proclamation and his efforts to get the 13th Amendment to the U.S. Constitution enacted –- up for several awards.
With the Academy Awards coming in the middle of Black History Month, it’s worth noting the fact that Republicans have put up proportionally more votes for every important civil rights act, including the landmark Civil Rights Act of 1964 during Lyndon’s Johnson’s presidency.
Against the backdrop of today’s battles – both in the courtroom and in state legislatures – over the civil and legal rights of gays, beneficiaries of government services and other groups who largely stand outside the Republican coalition, we now see the immigration issue emerging as central to the social reframing of the national Republican Party. But the question should be asked, who really stands for the civil rights of workers?
If you are interested in civil rights, how could you be against giving workers the choice as to whether or not to join a union, depending on each individual’s personal philosophy and calculation of the benefits and costs? The new Michigan laws enacted and signed by the Republicans who control the statehouse and the executive branch “…will not affect collective bargaining in any way except to take away unions’ ability to fire workers for not paying them,” according to Mackinac Center for Public Policy Labor Policy Director Vincent Vernuccio.
Until the political leadership of the state signed legislation about two months ago, Michigan workers did not have all of the freedoms many Americans enjoy. They have been dependent for worker benefits on the people who control their workplaces. We all come down the same way on helping runaway kids escape from people who control their lives in countless and sometimes very personal ways, yet we seem confused about the burdens placed on many businesses and even major industries by union work rules. Such rules are hardly ever designed to achieve competitiveness for an organization, even though this may mean the life or death of a company in the modern era.
In the year since Indiana became a right-to-work state, they have reported adding 43,300 jobs on Michigan’s southern border. In the same time period, Michigan has lost another 7,300 jobs to other places. What is really telling is that inflation-adjusted compensation, according to Mackinac, has grown 12% in right-to-work states, compared to about 3% in forced unionism states.
Americans are hardwired for fairness, and a lot of people buy into the idea that it is only fair that unions who negotiate for benefits enjoyed by all workers should be allowed to collect a fee from even nonunion members who might benefit. In truth, there is no mandate or even pressure on the unions to negotiate for workers who don’t want to belong, for one reason or another.
To frustrate the purpose of the new laws, many Michigan unions are attempting to negotiate contracts with “security clauses” that would delay the new worker protections 0as far as out as (in one case) 2023, by grandfathering the unions’ ability to lock employees into paying union dues and fees. There undoubtedly will be some court cases on this unprecedented scheme to skim workers’ wages well beyond current contract periods.
Of note: Vincent Vernuccio will visit Columbus on June 12 to headline the distinguished speaker series and present “The Michigan Story on Workplace Freedom and What It Means for Ohio,” produced by Opportunity Ohio and co-sponsored by the R Street Institute. There will be more information on our website as the date approaches.photo by: brunkfordbraun
It has been more than two years since the adults regained control of Florida, yet the specter of the Charlie Crist days of demagoguery, populism-at-any-cost and overall political buffoonery looms heavy over the state Capitol.
The idea that Charlie Crist wants to make a political comeback and pursue the office he once held and neglected —then abandoned in order to run for two other offices—has become common knowledge throughout Tallahassee.
The trial lawyer firm he works for does everything it can to promote him, including feature him in television ads and on countless billboards across the state. He continues to chase photo-ops, pen op-eds and do anything else he can to offer unsolicited pontifications on any political issue.
If there is an accelerated program that confers Democratic bona fides on someone, Charlie Crist has graduated from it with honors. As a newly-minted independent, he formally supported several Democratic office-seekers in 2012 (including against former allies), endorsed Barack Obama, was featured as an “independent” speaker at the Democratic National Convention, switched his party affiliation after fulfilling the token “independent for Obama” role and, immediately following the massacre in Newtown, Conn., joined the chorus of Democrats calling for gun control, which is a far cry from his strong pro-Second Amendment record that earned him an “A” rating with the National Rifle Association.
This appears to complete his two-year political metamorphosis, which makes him ripe for a possible comeback as a Democrat.
And legislators are aware of this.
But concern over a Crist comeback reached fever pitch this week when Jim Greer–his hand-picked former chairman of the state’s Republican Party–pleaded guilty to five felony counts after long maintaining his innocence. His guilty plea spared Crist the indignity and embarrassment of having to testify as a key witness in the case that would have focused on his knowledge of Greer’s illegal shenanigans as chairman. This has sparked rumors of what compelled Greer to plead guilty and who paid for the attorney who “parachuted in at the last minute” to negotiate the plea.
Political observers viewed the Greer trial and the embarrassing evidence it would have revealed as something that could have derailed Crist’s hopes of a comeback. That is no longer the case, and legislators are aware of this.
Florida’s 2013 Election Year?
It has long been the case in just about every state that governors are rendered lame ducks during their last year in office. After leaving, they are not even an afterthought for the remaining lawmakers, much less even a remote factor in subsequent policy decisions. But two years after his exit, Charlie Crist is in some ways more of a factor in some issues before Florida’s upcoming legislative session than he was while he was governor.
It is no surprise that legislatures historically pursue bolder agendas during non-election years. The medicine-may-be-harsh-but-the-patient-requires-it types of policies that lawmakers hate to enact, but must for the good of the state, are usually pursued during odd-numbered years to allow enough time for short-term public anger to fizzle and fickle public opinion to improve before next year’s election. However, Florida legislators appear to be treating 2013 as an election year.
Take the property insurance issue, for example. Even opponents of reform concede that Florida’s property insurance system is shaky at best. Florida’s state-run insurance mechanisms—Citizens Property Insurance Corp. and the Florida Hurricane Catastrophe Fund—are too big and largely underfunded. Both have the potential of levying enormous assessments on every auto, renters, boaters and property insurance policy issued in Florida, thus dramatically increasing every Floridian’s overall cost of insurance for several years after a sufficiently bad hurricane season. Or worse, Citizens and/or the Cat Fund may simply fall short on their ability to meet their claims obligations, leaving thousands of families and businesses unable to rebuild in a timely manner.
In short, this is a big deal.
Unfortunately, part of the solution to the looming crisis must involve raising insurance rates on some, especially those covered by Citizens who live in the highest risk coastal areas of the state. If not, the rest of us — whether directly impacted by a storm or not — could face paralyzing increases in our overall cost of insurance to bail out Citizens and the Cat Fund.
Legislators know this and many are examining measured ways to address these issues. However, there is growing concern among some lawmakers, including solid free-market types, that pursuing the right policies will open the door to Charlie Crist demagoguing the issue, as he did in 2006 and 2007.
However, there are many reform ideas that would largely address the Citizens/Cat Fund issues that do not have an impact on insurance rates, and those that do affect a minority of Floridians. Such increases would be smaller and more methodically applied than the big, uncontained increase that would affect every Floridian for many years after a bad hurricane season. In other words, it’s a “fewer people paying a little more now” vs. “everybody paying a lot more later” situation.
Nevertheless, most lawmakers know Charlie Crist’s modus operandi, and know that he and a few remaining crypto-supporters in the Legislature will use any rate impact—regardless of how small—as a call to condemn the governor for “increasing rates on consumers.”
Good politics does not always equal politically good policy. Regardless, lawmakers must take steps to decrease the likelihood or severity of post-hurricane assessments if they do not want an economic cataclysm after a bad hurricane season. Doing nothing amounts to political malpractice.
That being said, those of us who advocate market-freeing reforms to the state’s insurance system accept political realities and acknowledge that Charlie Crist cannot be permitted to return to the Governor’s Mansion, as he is the architect of most of the state’s current problems.
Here is the given: Charlie Crist will take any opportunity to demagogue any issue. If reforms that increase rates are enacted, he will demagogue the increase in rates. Conversely, if nothing is done and a hurricane strikes, he will demagogue and blame the ensuing failures of Citizens, the Cat Fund and the state’s overall insurance system on Gov. Rick Scott and the current Legislature, even though it was Crist himself who triggered the time bomb years prior.
As such, lawmakers should consider enacting solutions that address the overexposure of Citizens and the Cat Fund that don’t needlessly increase rates on Floridians; those that do impact insurance rates should be measured and their rationale clearly articulated.
For example, according to a recent study, there are potentially thousands of vacation homes owned by non-Floridians that are covered by Citizens at below-market rates, and thus, subsidized by Florida taxpayers. These out-of-state owners should not be paying anything less than full insurance premium sufficient to cover their risk. This would obviously be an increase in rates for them, but it would be difficult to find any Florida voter outraged with doing so on this category of policies.
Another example is a proposal to right-size the Cat Fund. Currently, the Cat Fund promises more than its own managers estimate it can pay out. That is not acceptable. If the Cat Fund—a state-run reinsurance company that provides coverage to the state’s private insurance companies, as well as to Citizens—cannot meet all of its obligations after a bad hurricane, Citizens may not be able to pay all of its claims, several of the state’s private insurance companies likely would be insolvent, and thousands of residents and businesses may be left without their claims fully paid, which could obliterate Florida’s economy.
This is totally unacceptable, and the only way to remedy it is to reduce the size of the Cat Fund and the amount of coverage it can sell. Insurers would have to go to the private market for that coverage, which could increase overall insurance rates by approximately 3% over three years (if a current proposal under consideration is adopted). That, by any measure, is a small price to pay to immunize the state from an economic catastrophe, and this must be clearly explained to Floridians.
Another way to prospectively protect Florida taxpayers is to eliminate the government incentive to build along the state’s highest risk coastal areas by making Citizens coverage unavailable for new beachfront construction. This would not only save lives and property, but also protect ecologically valuable areas, wildlife habitats, and the natural barriers (sand dunes, wetlands, etc.) that protect inland areas from wind and storm surge. This would have zero insurance rate impact, and it has the potential to bring fiscal conservatives and environmentalists together to support good policy. More on that here.
These are just a sampling of possible meaningful reforms that can be pursued without giving demagogues like Charlie Crist fodder. But there are more ideas that deserve examination. They just need to be properly executed and articulated to Florida residents who deserve to know that they stand to lose a lot more if nothing is done.
Despite what its supporters claim, the reintroduced “Marketplace Fairness Act” is bad news for conservative principles and limited government. If it were to pass, it would tear down the walls that keep state tax collectors from wandering outside their borders while causing serious damage to electronic and interstate commerce. Though there are innumerable problems with the bill, the three most important are as follows:
- Countenances enormous expansion in state tax collection authority – The Marketplace Fairness Act would wipe away a baseline protection that shields taxpayers from harassment by out-of-state collectors, the physical presence standard, which dictates that a state can only require a business to collect its sales tax if it is physically present within its borders. This legislation would eliminate that protection for remote retail sales, allowing state tax collectors to target businesses all across the country.
- Allows for imposition of an “unlevel” playing field on retailers – Supporters of the Marketplace Fairness Act claim that it would “level the playing field” between beleaguered brick-and-mortar businesses and online retailers. In fact, it would do the exact opposite. Brick-and-mortar sales would be governed by a rule that allows the business to collect sales tax based on its physical location, not the destination of their buyer. Meanwhile, online retailers would be denied that convenient standard and would be forced to interrogate their customers about their eventual destination, look up the appropriate rules and regulations in more than 9,600 taxing jurisdictions across the country, and then collect and remit sales tax for that distant authority.
- Creates damaging interstate commerce and compliance burdens – Because they would now have to comply with the complex tax codes in more than 9,600 tax jurisdictions, remote retailers would be weighed down by substantial compliance burdens. In fact, the “small seller exception” in the bill (which is an inadequate $1 million in remote sales when the Small Business Administration definition of a small business is $30 million in sales) is itself an explicit acknowledgment that it will impose significant collection costs and that some should be spared the pain.
In seeking to address the failures of the “use tax” systems employed by states, the Marketplace Fairness Act ends up giving a federal blessing to a massive expansion in state tax collection authority, the dismantling of a vital taxpayer protection upon which virtually all tax systems are based (the notion that physical presence is the appropriate limit for state tax authority), all while harming a sector (online sales) that still only accounts for roughly $0.07 of every $1 in retail spending.
Conservatives and believers in limited government should oppose such efforts and instead pursue a solution like origin-based sourcing, which would allow online sales to use the same collection standard that’s employed for brick-and-mortar sales today. An origin-based sourcing rule would require tax collection for all sales based on the physical location of the seller, not the buyer. This would maintain important taxpayer safeguards while encouraging robust tax competition.
The Marketplace Fairness Act has none of these virtues and should be opposed by conservatives in Congress.photo by: 401(K) 2013
The Texas Senate Business and Commerce Committee heard testimony on S.B. 183 this morning. The bill establishes a more reasonable period of time for private insurance companies to respond to requests from the Texas Department of Insurance. Additionally, it exposes the financial cost of such demands by requiring TDI to disclose the nature of the inquiry and justify how the request is necessary for the public good.
Current law requires companies to respond to data inquiries within 10 days after receipt. Such inquiries require additional personnel hours and resources which contribute to the overall cost of insurance products. Recognizing the cost of even the smallest regulation should give legislators pause when considering how much of a burden state agencies are allowed to place on private companies.
S.B. 183 was unanimously passed out of the committee and placed on the uncontested calendar. Currently, there is no companion bill filed in the House.
A great source of frustration to me when I worked in corporate America was that the people I worked with and who lived in my community would organize their whole lives around a football season, but saw very little need to get excited about the political Super Bowl going on all around them.
This process decides much more about critical choices and opportunities in their lives than sports events do. I comforted myself with the notion that, in America, we feel comfortable contracting out political decisions when we vote on our representatives, and then we don’t worry about how this is working out until we vote again.
While watching the Super Bowl this past weekend, I couldn’t help thinking that if you are a coach of a football team, all of your constituents want the same thing. They don’t care what the other team or their supporters want. There is no pretense that either team is trying to please most everybody at the game. This used to be different than the ideal for representative democracy, where protecting the minority and bipartisanship were clearly important features of the culture.
If the people we elect are doing their best to sort out the conflicting citizen demands for benefits or restrictions based on public policy that is for the most part widely agreed to, this is a system that works fairly well. In the states, no matter who is in charge, solving problems is still the main menu, not legislative love letters to your base. Leadership of a state through its governor and legislature reveal a bias, to be sure, and drawing legislative districts is very much a partisan exercise. But in the states, lawmakers seem to be much more focused on the good of the order.
In the states, elected officials have to deal with the background picture that is being painted by the president and mainstream media. The pollster Scott Rasmussen and reports this picture, for instance: Rasmussen polls taken at the end of last week reveal that 49% of the 1,000 Americans his team interviewed both think that they pay more than their fair share of taxes (compared to people who pay both more and less than they do) and that rich people still don’t pay enough.
Ohio Gov. John Kasich dropped his budget this week on the public, the media, and the lawmakers who have to fund Ohio’s government. It outlines (I was going to say “details”, but it’s probably the wrong verb) the finances for the state’s next two years by making a series of policy changes.
In order of explosiveness, the big kahuna is probably the expansion of Medicaid, which the conservatives deplore, believing that the correct approach is to be found in those states which have declared that shoveling more money into a system that is both dysfunctional and the lowest form of health care provision is a bad idea anytime. I will address this next time, and merely suggest that the political pressure is enormous from hospitals in particular to grab this (for now) 100% federally matched funding for the uncompensated care they contribute.
There are school reforms having to do with funding, which has been a contentious issue for decades in Ohio, based on the Supreme Court guarantee of a “thorough and efficient system of common schools throughout the state” providing education for all Ohio’s children. There is a higher education element which allows some higher form of cooperation between our institutions of higher learning in which different campuses lead particular academic specialties.
And there is tax reform. The more popular features for most folks are a 20% income tax cut over three years, amounting to $1.4 billion, and a 50% cut in small business income taxes up to $75,000. One of the big negatives is an increase in the severance tax, based on the beginning of a shale oil and gas extraction industry that appears to be coming to Ohio to take advantage of the new development made possible by horizontal drilling. Many question marks will greet the governor’s plan to tax attorneys, accountants, insurance, computer time and other services much more broadly to pay for the proposed income tax cut.
Something for practically everyone, and new challenges for the same group of people. States have to balance their budgets, and the lack of agreement on how to use government resources will produce spectacular fights before the dust settles. But the fights in Columbus are over critical matters and they will be engaged. There are no unmentioned elephants in the room and not much can kicking or — as I like to say now about the federal government – dragging the anchor.
The only thing I can be fairly sure that will happen in Washington this year is that Saturday mail service will be eliminated, and that because the decision doesn’t get made on Pennsylvania Avenue.
Floridians believe their state should stay out of the insurance business, rather than supporting a state-run insurance company, according to a recent poll sponsored by the Florida Chamber of Commerce.
The result comes from an issues analysis poll prepared for the Florida Chamber in November 2012, which found that 52 percent of respondents are opposed to the existence of the Citizens Property Insurance Corp., the state-sponsored property insurer that has grown to become the largest writer of homeowners insurance in the Sunshine State.
The polling was conducted through personal interviews with 700 Florida residents, picked to represent a cross-section of the state’s geography and demographics. In the sample, 72 percent owned a single-family home, 13 percent owned a condo and 15 percent were renters. Thirteen percent of the sample had their home insurance with Citizens, while 81 percent did not and 5 percent were unsure.
Among Citizens policyholders, only 12 percent knew the state could charge them assessments of up to 45 percent in a single year to make up for shortfalls following a hurricane. A plurality of the policyholders – 43 percent of them – thought the limit was 15 percent, while another 32 percent thought it was 30 percent. (Among non-policyholders, who can be charged up to 30 percent in post-event assessments to shore up Citizens, 80 percent thought the actual figure was 15 percent.)
Also noteworthy is that 82 percent of Citizens policyholders said they had “no information” about the up to 26 percent assessments the Florida Hurricane Catastrophe Fund and Florida Insurance Guaranty Association could lay on their home, auto and business insurance policies for up to 30 years after a storm.
But perhaps most noteworthy is this stark choice that the poll laid out for Citizens policyholders:
If given a choice, would you choose…
to pay 3% more for your Citizens Insurance policy and reduce your maximum assessment to 15% in the case of a major catastrophe;
to pay the current standard premium and be subject to as much as a 45% assessment in case a major catastrophe
Nearly three-quarters of Citizens policyholders said they would choose the former over the latter, with single-family homeowners, the elderly and those in the northern and southwestern parts of the state feeling most strongly that a 3 percent upfront surcharge was worth a substantial reduction in potential post-event assessments.
Among the 81 percent of respondents who were not Citizens policyholders, there were also some notable trends. Sixty percent said that Citizens should charge premiums that were adequate to cover potential losses, and another 62 percent said that Citizens policyholders, and not the state government, should pay the money needed to cover the 75 percent of Citizens’ sinkhole exposure that currently isn’t adequately funded.
Eight-nine percent of those who aren’t Citizens policyholders thought the fact that FIGA and the Cat Fund could assess home, auto and business policies following a hurricane was unfair, with 64 percent saying it was “very unfair.”
Want to keep up with the Texas Legislature? If you are into high tech toys, then you are in luck.
These are a few of my favorite tech things…
Bill filings can be tracked at: @TXLegeBills.
Press releases and announcements from the Texas House of Representatives are @TexasHouse.
The Texas Senate Business and Commerce Committee is @TxLegeBC.
House Witness Registration:
According to the new House Rules, in order to sign up to testify for a committee hearing, the public may find an iPad either located in the hearing room or throughout the extension halls to register for the hearing. Additionally, the public can also access the registration page through their personal device by following the instructions at: https://www.mytxlegis.legis.state.tx.us/hwrspublic/about.aspx.
MyTLO is an app that is linked with the Texas House Research website. It allows the look-up and tracking of bills. The public can sign up for alerts to know certain pieces of legislation have recently had a change in status.
TexLege is another app that allows the public to track bills, but additionally, gives members contact information. The app also has committee information and useful maps of both the interior of the Capitol and the exterior grounds.
Of course, all of the committee meetings and chamber sessions can be seen live online.
If you have to miss a meeting or two, do not panic because all of the videos are archived as well.
Time Warner cable also provides coverage of the House on channel 383 and the Senate on channel 384.photo by: rcbodden
As Florida’s 2013 legislative session draws near, state lawmakers once again are preparing to examine reforms to the Sunshine State’s property insurance system. Most notable, of course, are proposals to shrink the state-run Citizens Property Insurance Corp. and/or the Florida Hurricane Catastrophe Fund.
As Insurance Journal recently reported, the state Senate Banking and Insurance Committee has taken the lead thus far this year, with the panel entertaining a series of reform plans – including a detailed proposal from Insurance Commissioner Kevin McCarty – in a recent all-day hearing.
Despite some rumblings that the state’s Democrats, led by Senate Minority Leader Chris Smith, D-Oakland Park, would oppose any reform measures that result in higher insurance rates, we at the R Street Institute remain optimistic that real reforms could pass this year, and that they ultimately would receive bipartisan support. As has long been the case in Florida, geography, rather than party affiliation, is actually the bigger divide on the issue of property insurance reform.
But before reform can move forward, it is crucial that lawmakers be educated about the facts on the ground. One common misimpression, both in the Legislature and among the state’s congressional delegation, relates to the federal “bailout” option they presume to be on the table. Under the doomsday scenario that Florida is visited by one or more major hurricanes this year or in some coming year, and the state-sponsored insurance mechanisms find themselves not just bankrupt, but unable to raise a sufficient amount of money in the capital markets to fund their immediate needs, it is assumed that Florida would be able to turn to the federal government for assistance. As Insurance Journal put it in one recent piece:
The idea that the federal government would provide a financial backstop in the event Florida found itself unable to cover the damages from a major storm has long influenced public policy. The fact that Congress allocated $50 billion in federal aid to help rebuild portions of New Jersey, Maryland, New York, and Connecticut hard hit by Superstorm Sandy supports the idea that the federal government would likely come to Florida’s rescue in a similar situation.
This misimpression, it appears, is clouding some lawmakers’ judgment about what is or is not possible, as the article also notes:
(Senate Banking and Insurance Committee Chair David Simmons, R-Altamont Springs) said the Sandy example of the willingness of the federal government to provide that level of financial support in the event of a major disaster could prove a disincentive for some lawmakers to make major reforms, especially if that means raising rates.
“There are those I want to point out who think it is okay to sell policies at unsound rates because we will be bailed out,” said Simmons.
But it’s important to keep in mind that, among that $50.5 billion in Sandy aid, not a penny went for items that were covered by private insurance. Insurance Journal actually provided the breakdown, noting that the $16 billion of CDBG funds (only $3.9 billion of which is set aside solely for Sandy-related projects) are to be used for “rebuilding roads and hospitals, other infrastructure projects, helping small businesses reopen, restoring utilities and providing rental subsidies.”
Other purposes to which the Sandy aid is earmarked include $11.49 billion for FEMA’s disaster relief fund, which covers shelter, restoring utilities and other immediate needs; $10.9 billion for transit system recovery; $5.35 billion for Army Corps of Engineers projects; $2 billion to repair federal highways; and then smaller amounts for National Oceanic and Atmospheric Administration projects and repairs to Coast Guard and Veterans Affairs facilities.
Essentially, that is, the aid goes toward immediate disaster needs and to repair infrastructure, primarily federal infrastructure. Small businesses also can receive special low-cost loan terms and some individuals may receive small grants to repair damage to unattached structures on their properties, like sheds or garages. But the federal government quite explicitly does not pay to cover items that property owners could, and should, have insured privately.
That represents a problem for Florida in the event that Citizens and the Cat Fund do go bust. There is no precedent for the federal government to bail out a state-run insurance mechanism and no one can assume that the federal government would bail out a state-run insurance mechanism.
In fact, as economists C. Randall Henning and Martin Kessler show in their paper Fiscal Federalism: U.S. History for Architects of Europe’s Fiscal Union, the last time the federal government intervened in any way to absorb the debt of a state was after the War of 1812. The original Bank of the United States did take on states’ war debts both from that war and from the Revolutionary War.
But the federal government refused to step in during the Panic of 1837, when eight states (along with the then-territory of Florida) defaulted on their debts to creditors like the United Kingdom and the Netherlands. There hasn’t been a federal bailout of any state ever since.
And there’s fairly good reason to suspect that the political resistance to bailing Florida out of its self-imposed woes would be quite strong. During debate of the Sandy supplemental, there was a strong contingent of voices who objected even to raising the National Flood Insurance Program’s borrowing authority to pay Sandy flood claims, even though the NFIP is contractually obligated to pay all of its claims. Imagine the outcry that would emerge from the halls of Congress at the notion that taxpayers in West Virginia or Arkansas should have to pay for the claims of much wealthier Floridians, because the state intentionally set its rates at levels far below what was needed to cover its own risk.
Could such a bailout ever take place? Certainly, it’s possible. But one would have to think the terms would hardly be the sort Floridians would want to endure.photo by: Alex E. Proimos
Gov. Rick Scott this week unveiled his long-awaited Fiscal Year 2013-14 budget. Thanks to expected revenue increases, Scott and state legislators will not have to grapple with a budget shortfall and tough cuts for the first time in several years.
Joined by university presidents and teachers, Scott rolled out his $74.2 billion “Florida Families First” budget, which includes a $2,500 across-the-board salary raise for teachers, bonuses for high-performing state employees who have not seen a pay increase in seven years, funding restoration to universities whose budgets were cut in previous years, and additional tax cuts for businesses. His budget also calls for increased funding for environmental initiatives, including Everglades restoration.
Critics on the left have said that Scott’s budget departs from his past cuts for purely political purposes, as his reelection looms next year. Some on the right have criticized his budget for being too large, since it is the state’s largest on record. (Taking inflation into account, Florida’s 2006-07 budget of $73.8 billion would have been $84 billion in 2012 dollars.)
At the end of the day, the Florida Constitution requires lawmakers to adopt a balanced budget, and given the difficulties Scott inherited, his proposal to increase the salaries of public employees who have not seen a raise in several years does not appear unreasonable during an improved revenue situation.
Florida lawmakers will convene in March for their 2013 Regular Legislative Session and will no doubt dissect the governor’s proposed budget. Stay tuned for what is sure to be anything but a smooth process to decide what to do with the state’s first budget surplus since the previous administration.photo by: peasap
“You’d better cut the pizza in four pieces, because I’m not hungry enough to eat six.” – Yogi Berra
Under the headline “Does it Matter if it’s Real?” the front page of USA Today this past weekend sums up the popular media version of current events, from Beyoncé lip-synching to Lance Armstrong’s doping to Manti Te’o, the apparently massively gullible Hawaiian football sensation who is a graduate of Punahou (President Barack Obama’s high school alma mater) and is now a senior at the University of Notre Dame. (Just to be clear, the president, the entertainment and sports worlds and even state legislatures can fashion their own answers to the newspaper’s rhetorical question. In the think tank world, it does matter.)
Now that Speaker John Boehner, R-Ohio, and President Obama have retired to their respective corners to lip-synch Taylor Swift’s “We Are Never Ever Getting Back Together” following the president’s Second Inaugural Address, it seems an appropriate occasion to remind everybody that School Choice Week is upon us. Educational reform is one of the few truly bipartisan efforts to produce a better America. It’s real and it matters. The money spent on education in this country is also real, but it turns out that it doesn’t matter as much as some other factors.
There is room to argue that reform of a system that hasn’t been remodeled in a century and a half is hardly worthy of the effort; that the system should be blown up and we should start over based on what we now know but didn’t when public schooling was fashioned on the industrial model. At the time, the most important thing we thought kids had in common was their age (as creativity expert Sir Ken Robertson puts it, “their date of manufacture.”) These serious conversations about inputs and outputs can be informed by what we have learned about kids’ brains, technology and teachers unions. But this argument is for another column and another day.
It is quite possible to lose track of the few trends that augur well for the nation with all of the news poured out over us on a daily basis, but school choice is a movement that has produced some real world victories for the kids fortunate enough to be included. A celebration and status report will – I wish I could say – “engulf” the nation this week, where 3,000 events are planned around the country. Hopefully it will at least be a part of the news coverage showing tens of thousands of parents and children enthusiastically participating.
Roughly 70% of the American people support charter schools as one vehicle of school reform offering to improve our kids’ chances to engage a future and an economy that we can barely fathom with the pace of change around us. A good teacher can be found in any system, but charter schools at least let parents get around a few union work rules and some administrative padding. The curriculum can be modified as the environment does.
Enabled by legislation that originally was passed in Minnesota more than two decades ago, and is now in place in 41 states and the District of Columbia, there are today more than two million children enrolled in 5,600 American charter schools. And I can tell you first-hand that the parents who have this opportunity are inexpressibly grateful to be on this side of what is probably the most significant manifestation of the “inequality gap” in these United States.
Indiana is celebrating the $200 million of public money it saved the first year of its school choice program, as well as the tripling of students to about 9,300 who were able to take advantage of comparatively new Choice Scholarship Program in the state this year. About 55% of the students in this very practical state now are eligible for scholarship assistance.
School choice legislation was defeated a couple of years ago in my home state of Ohio, which would have allowed about 85% of our K-12 students some choices in where they go to school. Currently, the number in Ohio is less than 25% through four different programs enacted in different legislative sessions. If you don’t have special needs, autism or live in Cleveland, you’re stuck in a system where we devote “significantly” higher fractions of our operating budgets to non-teaching personnel than practically every other country on earth. In one recent study, a 17% increase of students over two decades was matched by a 46% increase in staff who aren’t teaching.
There is little evidence that, in the aggregate, student achievement has improved with this dramatic rise in staffing. Nobel laureate James Heckman has shown that graduation rates peaked in the early 1970s, for instance.
This week, a sister public policy organization, the Heartland Institute, is featuring an address by Ember Reichgott Junge, a former state senator who managed against steep odds to get the original enabling legislation passed in Minnesota. Minnesota is mostly a progressive state with a lot of pride and famous institutions built to compete at the highest level, like the Mayo Clinic, and companies like General Mills, 3M, Buffalo Wild Wings, Target, Best Buy and UnitedHealth Group.
Minnesota’s most current numbers indicate that 225,762 taxpayers a year take advantage of the deduction available to lower-income families, and around 60,000 more file for the tax credit, which covers only 3% of the total per-student spending in the state.
Progress is slow, but demonstrable. Perhaps it would be more helpful if more adults interacted with their children and their friends’ children as though education is not just important, but interesting to them.
President Abraham Lincoln has been resurrected cinematically to contest the movie industry awards and to remind us how to view certain challenges weighing upon our nation. In 1862, when addressing the Congress, Lincoln remarked, “The dogmas of the quiet past are inadequate to the stormy present. The occasion is piled high with difficulty and we must rise with the occasion…We must disenthrall ourselves, and then we will save the country.”
The Florida Legislature ended two weeks of interim committee hearings this today with various hot-button issues addressed. One that we at R Street follow very closely is the political football of property insurance reform.
Before the holiday recess, the chairman of the Senate Banking & Insurance Committee Senator David Simmons tasked the state’s property insurance market stakeholders, including regulators, pertinent state agencies, insurance industry officials, and the public to offer specific reform proposals for the committee to consider. Simmons dedicated two entire committee meetings last week and this week to hear and discuss various proposals. R Street was among the various groups that submitted a list of potential market-freeing reform ideas, including a study on protecting taxpayers and the environment through property insurance reform.
Several ideas were proposed by various groups. These included: gradually reducing the capacity of the Florida Hurricane Catastrophe Fund (Cat Fund) to a level which it can be reasonably expected to make good on its claims obligations; establishing a “clearinghouse” to verify that consumers seeking coverage through Citizens Property Insurance Corporation (Citizens) are genuinely eligible; exempting new policies in Citizens from the current 10 percent glidepath rate cap; accelerating the 10 percent glidepath over a few years; making non-primary residences ineligible for Citizens coverage; allowing private insurers to purchase and include the cost of ”duplicate” coverage that the Cat Fund may not be able to cover; and allowing Citizens to enter into “quota share” agreements with other private insurers thereby allowing them to share risk, among various other proposals.
After some questions and discussion, the chairman indicated that committee staff would coordinate with its sister committee in the House to begin drafting a bill incorporating most of the ideas to be examined and dissected by committee members at a future meeting.
On the political front, Republican Governor Rick Scott, whose approval numbers have been anemic since his arrival in 2011 announced this week that he would propose an across-the-board $2,500 salary increase for teachers. This announcement came on the heels of a major legal victory for Scott when the state’s Supreme Court decided to uphold a controversial piece of pension reform legislation that requires state and local employees participating in the Florida Retirement System (FRS) to contribute 3 percent of their salaries to their retirement. Allowing the law to stand essentially frees up roughly $1 billion that would have otherwise had to have been repaid to state employees. Prior to the change, the FRS was entirely employer contribution-based. Needless to say, the change in legislation upset public employees, including teachers, who viewed the requirement to contribute 3 percent of their salaries to the FRS as a 3 percent pay cut.
However, the change in law aligns the FRS with most other states’ retirement systems that require employees to contribute a certain amount to their pensions.
Yesterday, Texas state senators drew lots to determine if they would serve a two- or four-year term before defending their seats at the ballot box again.
One of the unlucky ones to draw a two-year term was Sen. Wendy Davis, D-Fort Worth. She won her seat by only a 2% margin in a $5 million race last year. The Democrats see her as a rising star. And after San Antonio Mayor Castro announced he will not run for governor, many see Davis as another hope for higher office. However, drawing the short term would require Davis to choose between her Senate seat and another position on the ballot. Republicans are excited to have another shot at the Republican-leaning district and believe Davis is vulnerable without Obama at the top of the ticket.
Another senator drawing the short end of the stick was newly elected Sen. Donna Campbell, R-New Braunfels. Campbell first upset Railroad Commissioner Elizabeth Ames Jones to earn a place in the runoff. Then, she surprised long-time incumbent Jeff Wentworth to win the seat in the fall. There is little chance this district could be won by the Democrats, but many in San Antonio would like it to return to one of their own.
Two other freshmen — Sens. Kelly Hancock, R-North Richland Hills, and Charles Schwertner, R-Georgetown — also will run for re-election in 2014. Last year, Hancock was challenged by fellow House member Todd Smith, but Schwertner ran unopposed.
Since Texas law prohibits members from fundraising during session, senators should focus on the task at-hand, passing good public policy for Lone Star State citizens.
As our regular readers may recall, last month we reported a revealing set of findings by a Florida blog that connected a handful of plaintiffs’ law firms to the vast majority of litigation against state-run Citizens Property Insurance Corp. Since then, the same blogger, Johnson Strategies, did a little more public records digging and found similar results with the public adjusters that deal with Citizens claims.
For example, he reported that the top 10 PAs accounted for roughly half of all the Citizens claims reported. In other words, “that’s 10% of $23 million for ten public adjusters or about $230,000 each.”
Although the law allows PAs to get a bigger cut from claims against private insurers, Citizens remains the lower-hanging fruit, as many private insurers possess better in-house mechanisms to fight frivolous claims–not to mention higher-paid lawyers. Despite this, the overall increases in property insurance claims and their payouts over the past few years has led to increased costs and thus higher insurance rates for consumers across the board:
On a statewide average basis the typical Florida home owner funds nearly $600 in routine, non-catastrophic losses; kitchen fires, dropped objects, water leakage, etc. That’s up from $250 just five years ago. Without a single wind event of any significance, and adjusted for taxes and commissions, that’s over $400 more for every policyholder in the state, every year! And, much of it comes from areas of high public adjuster concentration.
He further observed that several PAs have given themselves curious names. For example, some appear to share names with a few of the law firms that do a a lot of Citizens litigation. Others have names that may sound like company adjusters for some of Florida’s larger insurers, including Citizens, which might make people think it has an official connection to the state-run insurer.
Some PAs, he said, even have names that might make people assume it has an affiliation with the government.
This particular observation seems to have rattled one of the PAs to the point of threatening a lawsuit against the blogger if he didn’t “cease and desist and remove [their] name right away.”
The blogger shrugged it off, debunked its merits, and labeled it an (apparently futile) effort to limit his freedom of speech. Needless to say, he did not remove the original reference.
The apparent attempt to limit the blogger’s constitutional right to free speech seems too obvious to address beyond this sentence. The real question is: what would make a business threaten a lawsuit knowing that it will likely draw more attention to a negative story and broaden the seemingly narrow-issue audience of a critical blog?
Having already witnessed the inauguration of President Barack Obama the first time around, I opted this week instead to attend the opening day of the newly elected Hawaiian Legislature instead on the invitation of a Hawaiian lawmaker who is a friend of mine. Not that anybody needs a special reason to travel to this delightful part of the world, but my wife Angelique was living in Hawaii when it became a state, and her grandfather was the senior officer aboard the U.S.S. Arizona. In the Japanese attack on Pearl Harbor, he became the first American admiral to be killed in action against a foreign enemy.
The economy is starting to improve in Hawaii, and there is pent-up demand to restore budget cuts that have been instituted during the Bush-Obama recession. One could not seriously claim that there is anything pent-up about demand for services provided by the federal government, just further demands on American taxpayers and the Bureau of Engraving and Printing that manufactures American money. According to the popular press, honoring, or even observing the current debt ceiling would be an unpatriotic and dangerous game which could only be proposed by fringe groups who are unqualified to govern an important country like the United States.
In Hawaii, and in most other states as well, there are limits to even what lawmakers can promise, and I rate that as a good thing. The leaders of their respective chambers, both Democrats, took slightly different approaches, but neither one suggested that the state would be able to avoid choices. It is going to be either state-funded preschool, or more money for teachers and school buses, but not both.
New Speaker of the House Joseph Souki has served as its presiding officer before, and even convinced a couple of Republicans to support him this time as a reformer, for which they were rewarded with vice-chairmanships on a couple of legislative committees. We were rewarded with a little drama as the old guard protested and serial recesses were called to whip a 30-20 vote in favor of the new committee assignments and leadership. (For perspective, there were seven Republicans elected to the Hawaii House of Representatives for the current legislative session.)
The speaker began his remarks by saying, “We have the chance now to rebuild what the recession took away.” But he followed up by suggesting that the state’s personal income tax is too high, and I suspect that, at 11%, most of us would agree with this.
New Senate President Donna Mercado Kim took a different tone in her first speech as the leader of her chamber. In her opening day remarks, Kim stated: “I hope, first and foremost, that there’ll be no new tax burdens thrust upon our citizens and that we will not automatically open the taxpayers’ pocketbooks to every budget request, to every new proposal and every new capital improvement project.” She added, “Re-evaluating and reassessing what we have in place may not sound sexy or innovative or sell newspapers, but we must discipline ourselves to do this if we are to be more efficient and effective than we have been.”
If the president’s inauguration speech sounds anything like this next week, I will be surprised, but delighted.
Swearing in for the Texas legislature will open with a sunnier financial outlook than previously expected. State Comptroller Susan Combs announced a $101.4 billion revenue estimate for the next biennium in addition to $11 billion in the Rainy Day fund. Governor Perry and Lt. Governor Dewhurst immediately cautioned both chambers against the temptation to use the good news to increase budget spending. However, several conservative members are filing bills that would tap the Rainy Day fund for one time expenditures.
A balance act of protecting taxpayers and investing in vital infrastructure for an ever growing population should be the goal in these policy making decisions. Particularly, transportation and water issues must be funded in a new manner to meet the basic needs of Texans. Rep. Bill Callegari (R-Katy) struck the right tone when he proposed using a portion of the Rainy Day fund as seed money to invest as a means to providing an increase in revenue for these projects without raising taxes. Sen. Dan Patrick (R-Houston) declared that the gas tax was originally meant to build roads back when automobiles consumed 14 miles per gallon. With more efficient fuel usage, the tax can no longer keep up with the 1,000 new people that move to Texas every day. It is time for some new Texas sized solutions.
With half of the state budget dedicated to public education and one-fourth to healthcare, lawmakers have very little discretionary spending to allocate. It will take creativity and visionary thinking to adequately fund essential services. But the rhetoric I heard around the Capitol this week gives me reason to hope. The next 19 weeks will show us how serious members are to make a change.
Florida state Rep. John Wood, R-Winter Haven, notes in today’s edition of the Sun-Sentinel that the feds aren’t the only ones dealing with a “fiscal cliff.” So long as policyholders of the state-run Citizens Property Insurance Corp. continue to pay “dramatically insufficient insurance rates that don’t cover the true risk on their homes,” so is the Sunshine State.
With Citizens’ 1.5 million policies now representing roughly a quarter of the state’s property insurance market, whenever the state faces its inevitable next major hurricane, Floridians will “be subjected to serious hurricane taxes on our personal and business insurance policies,” Wood notes. While acknowledging a growing consensus that Citizens must shrink, Wood calls out his fellow lawmakers to proceeding “much too slowly,” particularly given that 30,000 new policies flood into the program every month.
Unfortunately, our current public policy is to allow consumers to obtain coverage in Citizens at inadequate rates and then to cap their rate increases at 10 percent annually to avoid financial shock. Of course, no one ever wants to pay higher insurance rates, and Floridians are still recovering from a deep recession. But we’re digging ourselves an ever-deeper financial hole that will be tough to climb out of when the wind blows again.
Last spring, when Citizens’ board considered lifting the 10 percent cap for new business, Florida CFO Jeff Atwater said it would be beyond the Legislature’s intent to do so. If this is so, then state lawmakers should fix this problem in the coming 2013 session.
New policies pouring into Citizens at a rate of 8,000 per week should be priced at the actuarially correct rate so that Citizens’ reserves needed to pay claims down the road will be sufficient. Otherwise, all Florida policyholders will be taxed to make up any shortfall in Citizens’ reserves, and that is wrong.
Additionally, affluent homeowners already in Citizens should pay actuarially-sound rates immediately. Why should someone with a house valued at over $500,000 (excluding land costs) be able to buy “discounted” insurance from the state? Working families should not have to face the possibility of hurricane taxes on their homes, cars and small businesses to bail out well-heeled Citizens policyholders after a hurricane.
Given that, in his private life, Wood is both a realtor and the chief executive officer of housing company John Wood Enterprises, he’s someone who would have plenty of incentive to go along with the status quo of irresponsibly cheap property insurance. That even someone like him is stepping forward to demand change has to be considered a positive sign that Floridians are waking up to the enormous albatross former Gov. Charlie Crist left around their necks.