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Reject Proposals to Issue Rebates, PAR Says

Plans are currently being developed to spend a large state budget surplus from last year. Some estimates predict the surplus amount, which will be finalized in December, will reach $800 million. Elected officials are circulating proposals to spend some of the surplus to issue property insurance rebate checks. That would circumvent current constitutional limitations on the spending of non-recurring revenues, which are based on sound fiscal policies that remain valid in the post-Katrina environment.

The various proposals would cut rebate checks for property owners just before the 2007 elections. They also would use a combination of surplus and other funds to head off future insurance surcharges scheduled for the next 10 to 20 years.

A more fiscally responsible, though much less politically popular, use of the surplus would be to spend it directly on other pressing, constitutionally allowable uses. A number of hard-won reforms have limited spending of surplus dollars to capital outlay and transportation projects, coastal restoration projects, unfunded retirement obligations, the rainy day fund and early debt payment. With the exception of the already full rainy day fund, most of these constitutionally established, high-priority funding demands persist today. They should not be neglected in favor of a rebate plan.

The cost of unmet capital outlay and transportation needs for the state, for instance, far exceeds the estimated $800 million budget surplus. Unfunded, recovery-related capital outlay and transportation needs exceed $2 billion. Unrelated to the recovery, the state’s transportation infrastructure wish-list exceeds $15 billion, and the state’s unfunded accrued liability for the retirement systems tops $12 billion. Additionally, restoring the state’s coastal wetlands is estimated to cost $14 billion to $20 billion.

The rebate proposals would refund property insurance surcharges (around $100 to $150 for a $1,000 premium) that are being assessed to new and renewal policies on top of any basic rate increases also being added. The surcharges are passed on to individual policy holders via private insurance companies that share the cost of hurricane-related debt incurred by Citizens Property Insurance Corp., the state’s insurer of last resort.

The combination of rising basic rates and storm-related surcharges presents a serious barrier to rebuilding devastated areas of the state. But, the shortsighted approach of refunding and heading off the surcharges offers mere distraction from Louisiana’s bigger insurance problems – rapidly rising rates and fewer insurance companies wanting to do business here. Attention must be paid to the problem of insurance affordability, but the rebate plan would do nothing to reduce rising rates, minimize the risk to insurers or head off the need for assessments related to any future disasters.

In a major election year, the opportunity to issue rebate checks to voters is a dream come true for incumbent candidates. It is good politics, but not good policy. The state should spend its budget surplus on uses allowed by the Constitution and developed through years of fiscal reform efforts. The problem of insurance affordability cannot be solved with the surplus and should not be attacked with a hastily constructed, election-year rebate plan.


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