Florida's state government easily could end up bankrupt unless the Legislature abruptly changes course. Minor insurance law changes approved Wednesday don't change much at all.
This risk of a fiscal meltdown doesn't arise from the housing crisis or the slumping national economy. No, this particular danger arises from the state's enormously misguided stance on property insurance. If a storm were to hit the wrong area of Florida, Citizens Property Insurance Corp. and the Florida Hurricane Catastrophe Fund could quickly run up bills topping $30 billion.
How does the state plan to pay those bills? By selling bonds. Yet no state has ever sold more than $11 billion in bonds at one time, so it's highly unlikely that today's skittish bond markets would buy that much debt from a storm-battered state with a sluggish economy and a shrunken tax base.
As a result, Florida would be faced with some unenviable choices: massive tax increases, deep service cuts, or, most likely, some sort of federally supervised bankruptcy.
The situation won't get any better until Florida's private insurance market is restored so property owners can be compensated using private capital gleaned from a broad base around the nation rather than from public funds collected in Florida.
In the past year, however, nearly all of the insurance industry's major companies have reduced their exposure in Florida.
Meanwhile, Citizens' artificially low rates, coupled with the cat fund's massive potential liabilities, virtually guarantee that there won't be enough money on hand to cover losses if even a minor storm hits a densely populated areas.
So, covering this shortage will require massive new taxes (called special assessments on insurance premiums) that could easily double the premiums that Floridians pay to insure their property and their vehicles.
No plan that would solve these problems has made it out of a legislative committee to date and its near impossible that any will before the Legislature adjourns tonight. .
Instead, the Legislature has concerned itself with a variety of measures that would tweak things around the edges. For instance, Chief Financial Officer Alex Sink's proposal to reduce the size of the cat fund should top the legislative priority list. It almost passed this week and should get top consideration the next time it meets. Although that wouldn't solve all the state's insurance problems tomorrow, it still reduces the chances of a state bankruptcy.
Likewise, legislation past Wednesday requiring the state's insurance regulators reveal more of the methods they use to evaluate insurance companies' rate filings might give some private companies enough regulatory certainty to resume writing policies in the state.
But several bills advancing in the Legislature simply don't make sense. For example, proposals to remove insurers' anti-trust exemptions would destroy smaller Florida-based insurance companies and, in any case, almost certainly violate longstanding federal law.
Likewise, "consumer protection" measures passed Wednesday promise to create a bonanza for lawyers. The costs of litigation could probably be enough to drive up rates for everyone.
Finally, a plan to raid Citizens' already near-empty coffers to subsidize "private" start-up insurers would allow private investors to reap significant profits so long as Florida remains storm free, but would likely leave taxpayers footing the bill if a storm came. At the same time, it could destabilize already shaky Citizens and send it tumbling toward bankruptcy.
Even if lawmakers defeated every bad proposal Florida still could face bankruptcy if the wrong storm hit because a real fix will have to wait until 2009, which is not an election year.
Even so, if common-sense legislation were to pass this year, it could at least reduce the risks to Florida's taxpayers. Conversely, the wrong proposals, coupled with the wrong storm, could make bankruptcy almost inevitable.