‘Taxpayer Protection Act’ Hit by Groups on Both Left and Right

‘Taxpayer Protection Act’ Hit by Groups on Both Left and Right
November 6, 2012

Pete Sepp

Pete Sepp is executive vice president of the National Taxpayers Union. (read full bio)
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The so-called Taxpayer Protection Act is anything but, according to an array of free-market, taxpayer, environmental, and insurance organizations that warn the measure would put taxpayers on the hook for billions of dollars of property insurance losses and encourage more development in risky areas.

At least two coalitions with nearly three dozen organizations between them have sent letters to the U.S. House of Representatives warning of the risks in H.R. 6477, recently introduced by Rep. Albio Sires (D-NJ).

Critics deride the bill as another attempt at a “beach house bailout.” It would provide a federal backstop for damages currently covered by state-run insurance programs.

‘Protects All of Us’

Sires said in a statement the legislation “would create financial mechanisms to ensure that every household can afford insurance and that all families and communities have the means to rebuild and overcome the devastating effects of natural disasters.”

He added, “Our country needs a long term, self-sustaining solution to prepare and recover from these luckily rare but catastrophic events. We must come together now to create an insurance environment that protects all of us.”

Critics say the bill would shift costs from policyholders with high-risk properties to taxpayers and policyholders whose properties have lower risks.

'Open-Ended Bailout'

“You’re seeing a pretty broad and wide response against H.R. 6477, which is hilariously misnamed the Taxpayer Protection Act . . . . What this bill would do is potentially burden taxpayers with billions of dollars in liabilities, and it does so by creating a massive federal government-run reinsurance plan, an effectively open-ended bailout loan program to these state-run property insurance plans,” said Andrew Moylan, senior fellow at R Street Institute in Washington, D.C.

“So states like Florida, that have these very poorly structured plans that are not capitalized enough to be able to deal with a sufficiently large storm, they're basically coming to the federal government for handouts," he said.

Moylan noted programs similar to this one have been introduced several times in Congress.

“There have been variations of this legislation that have been introduced for years," he said. "We have jokingly tagged them as the 'beach house bailout' because what they’re attempting to do is to protect state-level insurance plans that are subsidizing in large part developments in sensitive areas and coastal areas, a lot of which tend to be filled by very expensive homes."

‘Programs Designed to Fail’

“The reinsurance and bailout provisions in H.R. 6477 represent a tremendous expansion of the federal government's role in insuring and guaranteeing against losses that are now covered by the private sector,” wrote a coalition of eight free-market and taxpayer organizations in an open letter to Congress. “In establishing such programs, this legislation would discourage fundamental reform in states like Florida, whose ruinous Hurricane Catastrophe Fund has upwards of $18 billion in liabilities and would be unable to pay billions of dollars in claims if a sufficiently large storm were to strike. Perhaps even worse, it could encourage other states to create similar programs that are designed to fail in order to capitalize on easy money from federal taxpayers.”

The coalition includes R Street Institute, Taxpayers for Common Sense, Americans for Prosperity, Taxpayer Protection Alliance, National Taxpayers Union, Council for Citizens Against Government Waste, Center for Individual Freedom, and Competitive Enterprise Institute.

’50 States Pay for One State’

The SmarterSafer.org coalition, made up of more than two dozen taxpayer, environmental, and insurance organizations, also wrote to Congress, stating, “Subsidizing insurance coverage not only burdens taxpayers, but incentivizes people to live in dangerous areas and discourages life-saving mitigation. Underpriced insurance does not provide accurate information about risk, creating a subsidy to develop in risky areas—areas that also provide natural protection from storms. This development directly harms this nation’s residents and communities by eroding our natural barriers to storms and their impact.”

SmarterSafer.org stated Sires’s proposal “unnecessarily shifts resources from taxpayers in all 50 states to pay for the mistakes made in one state like Florida.”

Pete Sepp

Pete Sepp is executive vice president of the National Taxpayers Union. (read full bio)