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State: U.S. should back hurricane fund

Florida officials are trying to prepare for a catastrophic storm.

By Brandon Larrabee Story updated at 5:16 AM on Wednesday, Mar. 11, 2009

TALLAHASSEE – The federal government can, should and likely will provide the backing the state needs to make sure the Florida Hurricane Catastrophe Fund could pay claims in the event a major storm hits this year, Gov. Charlie Crist and others said Tuesday.

The state is grappling with how the fund could be wiped out if a storm as destructive as Andrew or Katrina were to hit the state in the coming hurricane season. The difference between the fund’s ability to pay and its statewide obligations is expected to hit $18.4 billion in the fiscal year that begins July 1.

John Forney, managing director of public finance for Raymond James, said the ability of the state to raise anything close to that in the middle of a global financial crisis was extremely slim.

"This is not a CAT fund crisis," said Forney, a financial adviser for the program. "It’s a global finance crisis. … In the conditions that exist today, you would have a difficult time" raising the money.

As a reinsurance plan, the fund provides insurance to companies that sell property owners insurance. In the event of a major storm, the fund and private insurers could probably pay about $15 billion in claims. The chance of a storm hitting the state that would cause more damage than that is only about 6 percent, Forney said, but Florida should still be prepared.

The state is considering a menu of complicated financial options that would generate some of the money it would need, but is also lobbying for a letter of credit from the federal government.

Congressional members and Florida officials are working to find out if legislation would be necessary to allow federal help or if the government could provide the aid without a new law.

"I don’t think we can go through as a state and not have the federal government supporting us under the circumstances, and they should," Attorney General Bill McCollum said at a Cabinet meeting Tuesday.

Crist, optimistic the state can secure the help, said the federal government would likely end up helping Florida anyway if a major storm hits.

"Obviously, after storms like Katrina and others, this is exactly what happens," he said. "The federal government comes in, either on time or late, to help states that need help, because they’re part of America. I think what we need to do, though, is to do it in a smarter way."

Some conservative groups have blasted the request for help, though, comparing it to rescue plans for troubled banks that have already cost hundreds of billions of dollars.

"We’ve already done far too many bailouts of private companies," Eli Lehrer, head of the Competitive Enterprise Institute’s Washington-based Insurance Project, said last month. "State governments – particularly ones that make bad decisions – don’t need bailouts as well."

Chief Financial Officer Alex Sink, though, said the state’s request is not a bailout because Florida would be able to collect assessments from property owners later to make good on its debt.

"We have a mechanism to repay what we borrow from the federal government," she said.

The problem is finding the money to borrow.

"The only place that has liquidity … is the federal government," Sink said.