Out of the Storm News

Last year the R Street Institute expressed serious concerns with a proposed government-owned broadband network (GON) project in southwest Florida. After attending a public input workshop organized by the Southwest Florida Regional Planning Council to discuss plans of establishing a GON, we explained how government is fundamentally ill-equipped with managing such networks and keeping up with technological advances and the capital investments they demand; GONs are a drain on taxpayers; and how such GONs—despite safeguards and good intentions—undermine competition from private companies actually experienced in delivering cutting-edge service and technology, among other things.

Since then, there have been some developments that have validated our concerns.

In a recent paper, Dr. Joseph P. Fuhr, a professor at Widener University in Pennsylvania, revealed how the mayor of Davidson, NC and the manager of the GON in that city are trying to get their GON out of a financial hole so they can auction it off. So dire is that GON’s financial situation, that a quarter of Davidson’s annual city budget goes to keep it afloat—money that otherwise could be used for roads, public safety, and other services. Davidson and nearby Mooresville entered into the broadband business together and established MI-Connection despite warnings from leaders in other cities that the plan was economically unsound and the revenue estimates overly optimistic. According to Dr. Fuhr, today MI-Connection has fewer than 15,000 subscribers and a debt topping $81 million—or $5,400 for each subscriber.

Dumping the GON will not be easy for Davidson and Mooresville. According to Dr. Fuhr, “Because of bond financing obligations, 2017 is the earliest that the network can be sold.”

A separate GON case gone awry had a better outcome for the local government involved. Here in Florida, the Columbia County Commission voted unanimously to withdraw from the Obama Stimulus-funded North Florida Broadband Authority (NFBA) this past November.  Unlike the Davidson/Mooresville case, Columbia County was not bound by any such bond obligations, which made withdrawal that much easier.

Initially touted as a means to provide service for the “unserved and underserved” areas in North Central Florida, the NFBA quite simply did not meet its goals. Instead, the NFBA entered areas where high-speed internet access was already offered by private companies, which put the GON in direct competition with its private counterparts while doing little to achieve its prime directive.

Commissioners also cited internal issues with the NFBA, including public records requests that went unfulfilled and allegations of wrongdoing that NFBA officials never bothered to disprove.

Lack of transparency appears to be a characteristic of GONs, as officials at the southwest Florida meeting I attended in September offered little details about policies to protect taxpayers and private job creators as part of their GON project.

The R Street Institute’s long-held position is that consideration for a GON should be limited only to truly unserved or underserved areas, and that if established, it should be treated no differently than its private counterparts. GONs should be subject to the same laws, rules and regulations, and they should not receive preferential tax treatment, preferential access to rights-of-way or subsidized rates that make them cheaper than private carriers.  Most importantly, these networks must not be permitted to compete against private carriers and should include an exit strategy provision to encourage the private sector to eventually enter these areas and better serve its residents and taxpayers.

“Free money” from the feds is not reason alone to consider establishing a GON. One speaker at the Columbia County Commission meeting last November put it best: “Federal programs offer a lot on promises and are short on delivery.”

Unfortunately, it’s the local taxpayers that are forced to pick-up where the feds fall short.

New York State’s NYS 2100 Commission, created by Gov. Andrew Cuomo in the wake of Hurricane Sandy to offer recommendations on ways to better prepare for natural disasters, is out with its initial report, including a section on potential changes to the insurance environment.

Perhaps most notable is the recommendation that the report does NOT contain: any sort of expansion of the state’s residual market environment, such as a catastrophe fund. Cuomo’s commission appears to have justifiably learned from the mistakes of Florida, and focused their attention on looking for ways to harden the state’s infrastructure, improve mitigation and prepare for the future. Having the state government take over the property insurance market clearly isn’t the path to accomplishing any of those goals.

Instead, the report looks to more targeted and technical fixes to the insurance market. Some of the most important include:

1. A consumer education and disclosure initiative to publicize the existence of wind damage and hurricane deductibles; any capped reimbursements in a policy; when coverage for mold exists and when it doesn’t; and the availability of flood insurance.
2. A state study of why more consumers in floodplains do not purchase flood insurance, and whether the state should require flood insurance in places not currently required under federal law.
3. A state study of anticoncurrent causation clauses, and whether the state should allow them, or whether market realities make them unavoidable.
4. Studies on existing building stock and what kinds of risk reduction and mitigation are possible and cost-efficient.
5. An examination of whether the state should establish a revolving fund to provide incentives or loans for mitigation.
6. Allowing on-bill recovery of mitigation loans through insurance premiums.
7. Authorizing insurers to provide “civil authority” business interruption as a separate line of business, which would provide BI coverage in cases where the government has ordered evacuations or shut down roads. This line of coverage could possibly be expanded to indemnify even in cases where the underlying peril (like flood) would not ordinarily be covered.
8. An examination of whether to issue moratoriums on cancellations and non-renewals in the immediate aftermath of a major catastrophe.
9. Providing expedited procedures to issue adjuster licenses after a catastrophe.
10. More resources, such as hotlines and emergency response capabilities, from state insurance regulators.

We’ll continue to follow how the state’s legislators and regulators look to study and implement these proposals over the coming months.

“There is no reason for me, at the moment, to believe anything they tell me,” said New Jersey Gov. Chris Christie of his party’s congressional leadership at a press conference about federal disaster aid yesterday.  This remarkable public statement from a frustrated governor arises from a situation that embraces nearly every aspect of politics in this country nowadays. Maybe all politics is local, as the introductory course maintains, but I believe that a truer expression of reality is that all politics is personal.  Many manifestations of our political world are highlighted by events in Washington this week.

The strained quality of political leadership, the omnipresent political partisanship, the changing character of political loyalty and a nation apparently deeply divided on not just domestic priorities, but on core values and principles, are all on display.  The difficult questions of critical temporary help and the importance of government safety nets are set against the certain diminished long-term prospects of the nation if nothing “bends the cost curves” of federal assistance that our children and their children cannot afford to provide. Both are reasons to passionately debate the $61 billion aid package for the Hurricane Sandy-ravaged Northeast – yet on different sides of the question.

Aside from the obvious humanitarian relief, is it the federal government’s job to rebuild the beaches?  Should Minnesota taxpayers or people who live on mountainsides in New Mexico be upgrading the New York subway system?  Is that why we have a federal government?  Clearly the notion of a larger common purpose undergirds the policy, but the allocation of responsibility is the reality that is less examined.  Should comparatively wealthy people pay another 3.8% surcharge on their investments and property transfers for disaster relief as they will now under the new health care law?

The gradual erosion of the capacity for the national government to perform any other duty on our behalf except to pay interest on the national debt lays uneasily on all of these political elements, and also on basic decisions about the proper role of government and who picks up the tab. Yet the public is largely disengaged, unless something it likes is threatened.  And the public likes federal help.  Federal help on college costs. Federal help on nursing home care, retirement income security, telephone service, child care, school lunches and scientific research are all extremely popular. Federal help on wind energy production, and energy-saving anything, even if there are ample reasons for businesses to make decisions that save them money.

There is an industrial strength headache in store for a nation that cannot face the question of how to pay for the help it offers its citizens, and disaster relief is a tiny microcosm of the challenge. The fiscal cliff patch has been pretty well analyzed this week, but few Americans seem to understand that without growth in the economy, we will go down no matter what they think or do on the banks of the Potomac. Our GDP will reportedly take a 1% hit merely by the reimposition of the 6.2% payroll tax, and reaction to the new health care taxes is almost certainly more part-time work in an economy that desperately needs to be growing.

The administration’s disregard of small business needs may not be entirely its fault, since we are told that there are fewer members of the president’s cabinet with business experience than at any other time in recent history. Lip service alone from a president and Congress with well-honed rhetorical skills, belied by their regulations and heavier burdens on new and small business, will not convince us of their belief that the nation’s self-interest is inextricably tied to organic growth.

In the meantime, the terms “affordable” and “based on what they agreed to” in reports from the seat of government are sounds which produce a similar effect on me to the trailer of the new chainsaw movie.

If you have been watching any of the bowl ads on TV recently, you may have seen a push for usage-based auto insurance. Voluntary data collection is the wave of the future for insurance companies, giving good drivers lower premiums. But what about the privacy concerns?

The insurance industry states customers can save up to 30% for proving they are safe drivers. New technology can determine the time drivers are on the road, how many times they make a hard break and how far they are driving in any given period. Such information is advantageous for low-mileage drivers, such as the elderly, for securing affordable insurance rates.

Currently, the program is voluntary and risk-free for customers. However, liberty lovers and consumer advocates alike are skeptical that such data could be used against good drivers for instances that are not the driver’s fault. Additionally, soccer moms who are on the road simply carpooling children to school and activities could be unfairly treated simply due to the sheer number of hours they are forced to drive every day.

As of now, there is no legislative action on the horizon to address this issue, but it will become more and more a part of the discussions as companies look for advantages over the competition.

Though Texas escaped another hurricane season without a catastrophic event, a big storm is brewing at the Capitol over how to fund the state’s windstorm pool.

The current funding structure fluctuates greatly dependent on the bond markets. Such an unstable and insecure mechanism has caused lawmakers to rethink the Texas Windstorm Insurance Association in light of its growing liabilities, about $82 billion. Adding to the uncertainty of future funds is the continual payout for past storms, Ike and Dolly. Officials were forced to set aside another $100 million, that would have otherwise been invested in the Catastrophe Reserve Trust Fund, to pay for ongoing litigation. Thus, only $236 million is in reserve for the 2013 hurricane season.

The Corpus Christi Caller reports damages to that city alone could cost $147 million to $14.3 billion if a Category 4 storm was to make landfall in its area.

Though not formally filed as a bill, a couple of coastal lawmakers have floated an idea to require all Texans to share the burden caused by massive weather-related losses. Instead of TWIA policyholders repaying some of the bonds, the plan spreads more of the cost to private insurance companies. Since these companies are required by law to be solvent to do business in Texas, they will ultimately have to pass on the cost to their customers.

Since the plan is only in the drafting stages, it is impossible to state the amount inland residents may be asked to pay. However, Seth Chandler of the University of Houston predicts they would pay for about half of the first $2b illion loss in the event of a major hurricane.

While we at R Street continue to have our eyes and ears open for significant developments at both the state and federal level in this final week of 2012 — most notably, any deal Congress might strike to avert the so-called “fiscal cliff” — we will be on something of a hiatus this week, with regular updates returning after the New Year. From “Our” Street to yours, we wish everyone a Merry Christmas, Happy New Year and a wonderful holiday season!

Just when Floridians thought crazy state politics were about over for the year, in comes Charlie Crist.  I’m sure all the coverage surrounding him during the past two weeks has Floridians and non-Floridians alike wondering what all the commotion is about.  Allow me to shed a little light.

As it was reported, Crist took his visit to a White House holiday reception last week as an opportunity to announce he was switching parties for the second time in two short years, this time switching from a no-party affiliation voter, to Democrat. He switched from Republican to no-party affiliation in April 2010 when it became obvious to him that he would lose the closed Republican primary for U.S. Senate against Marco Rubio.

Since his switch last week, he has done everything in his power to garner as much attention for himself as possible. After announcing on Twitter that he filled out his paperwork to switch parties at the White House, he then issued an advisory saying he would make it official by physically going down to his county Elections Department to file the paperwork, no doubt to extend media coverage of his party switch and  encourage cameras to be present as he did so.

Then this week, he was invited to testify before the Senate and took the opportunity to trash his successor, current Gov. Rick Scott, blaming him for making Florida the butt of “late night TV jokes” because of the long lines on Election Day.

Later this week, Crist declared that he was now open to new gun control laws, after decades of toting the National Rifle Association position and opposing any laws that would curb them. In fact, many point to gun rights as the one issue Crist remained unbecomingly consistent on throughout his career. The NRA’s former president and current chief lobbyist in Florida Marion Hammer called Crist out on what the Miami Herald called his “flip-flop,” saying Crist “currently claims to be a deer hunter. I suspect that the only thing he has actually ever hunted is political office.”

Needless to say, many Democratic activists in the state are giddy to see Crist abandon the various center-right issues he claimed to embrace; others are willing to overlook his flip-flops because they believe he represents their only path to defeating Gov. Scott in 2014.  But other Democrats seem unwilling to sacrifice principle for the expediency Crist appears to bring. One prominent activist and head of a progressive group lashed out at what she perceives to be prominent Democrats clearing the field for Crist, saying “Charlie Crist is not a Democrat, no matter what that piece of paper says.”

Regardless of Democratic Party infighting on the matter, Crist’s reemergence in Florida politics has many Republicans uneasy about 2014.  My advice to them would be to look at history. Charlie Crist was at his apex two years before his 2010 Senate race. Just a little over three years ago, it was the National Republican Senatorial Committee and Republican leadership coalescing behind then-GOP Senate Candidate Charlie Crist. At the time, he was touting (read: inflating) his conservative bona fides and running thirty-plus points ahead of little-known former state House Speaker Marco Rubio. However, Crist proved to be a political hemophiliac who bled out after a few scratches. The result: he switched parties, abandoned just about every issue he once supported, endorsed Barack Obama — whom he previously attacked routinely — switched parties again, and now it’s Democratic leadership who seem to be coalescing behind him, all while he continues to feverishly abandon politically unfavorable issues, tossing them like bags of narcotics into the ocean.

The  time between now and 2014 is a political eternity, and Charlie Crist always looks good two years out. But given his history, closer to the election seems to be a different story, as voters’ memories seem to undergo some jogging.

I would like to officially announce that I have given up any hope that anyone is going to inject a modicum of rationality into the discussion on the rising costs of college education.

What drove me to this was an article in, of all places, the Wall Street Journal, lamenting the high cost of attending public universities. One (but only one) of the arguments against the “college costs are going to bankrupt us all” point-of-view that has been driving the sharp increase in subsidies for students is that the $50,000 a year tuition scare story that journalists love to trot out applies only to a wealthy cohort of students attending the very best private colleges. But the Journal warns us that going to a public university does not exempt a student from the potentially ruinous costs of undergraduate education.

Exhibit A in the article is Akaysha Joiner, a valedictorian of her high school class and a newly enrolled student at her state’s flagship school, the University of Colorado at Boulder. However, the tuition and room and board list at $23,000, which comes as a shock to her parents, both social workers. The father laments that when he attended the same school nearly thirty years ago it was much more affordable for his parents—who held similar middle-class jobs—and he isn’t sure where he is going to get that kind of money.

The story might seem a little sad until the author reveals that she received some significant financial aid—in fact, a total of over $10,000, plus a work-study job and a $5,000 loan. The various grants, in fact, more than cover the entire year’s tuition.

Forgive me if I’m having trouble getting my dander up on this one but an above-average student who receives scholarships that more than cover her tuition does not merit indignation or a “we need to fix this” response. There seems to be an easy solution to her father’s financial complaints that doesn’t involve the government coming up with more money for the Joiners, such as her living at home and attending the local branch of the U of Colorado for two years, living in less luxurious digs off campus, or the student and her father splitting loans that would total about $50,000 after four years. Having the government—at any level—cough up money so that she doesn’t have to resort to this seems like the very worst use of public funds that I can conceive of.

It’s time we abandon the tired trope of trotting out a college student and lamenting how much debt they could potentially face and had a conversation about who benefits the most from a college education and who should pay for it. Hint: In both cases it is the student.

We at R Street recently came across a blog post by Johnson Strategies, LLC that sheds light on the apparent motivations of many opponents to property insurance reform in Florida.

According to records obtained by the author, two law firms that have disproportionately profited off lawsuits filed against Citizens Property Insurance Corp. are the Merlin Law Group and Morgan & Morgan.

One of Merlin’s top attorneys is Florida’s former Insurance Consumer Advocate Sean Shaw, who also heads the group Policyholders of Florida. This organization, which publicly opposes insurance reforms that promote competition and crack down on fraud, is owned by the Merlin Law Group.  According to the author of the blog, this law firm has made almost $2 million off lawsuits against Citizens.

Another firm mentioned to profit handsomely off Citizens has become a household name in much of the state in recent years. Anyone living in Florida has either driven by a billboard or seen a hackneyed television ad by Morgan & Morgan featuring none other than the architect of the state’s current insurance crisis, Republican-turned-independent-turned Democrat Charlie Crist. Well, it should come as no surprise that Morgan & Morgan is another top firm in litigation against Citizens.  And with all the rumors flying that Crist will run for his old job, there is reason to believe that his current employer will do everything in its power to elect a governor who will veto any reforms that crack down on their lucrative litigation.

There is no question that there are many who genuinely advocate for consumers and are concerned that certain reforms may adversely impact Floridians who simply cannot afford to pay higher rates. But then there are those who use the plight of consumers as a ruse to keep the gravy train coming.

A good litmus test is to simply follow the money. If it leads you to a bunch of lawyers in a swanky office building in downtown Tampa instead of a struggling policyholder, beware.

See full blog post here: http://johnsonstrategiesllc.com/citizens-whats-needed-a-watchdog-or-a-real-tiger