Louisiana Citizens Property Insurance Corp.’s board voted Thursday to borrow $100 million through bonds to cover a $70 million shortfall — in direct defiance of the Jindal administration’s wishes.
In an email after the vote, Division of Administration spokesman Michael DiResto criticized the proposed bond issue, describing it as bad for all property owners and taxpayers.
“By increasing their debt, Citizens would impose additional fee assessments on every property owner,” DiResto said. “And because of the tax credit involved, the state would be put on the hook for partially subsidizing Citizens’ debt payments …,” he said.
“We will closely scrutinize this issue before it goes to the Bond Commission,” DiResto said.
Citizens issued $978 million in bonds in 2006 to cover its Hurricane Katrina and Rita claims. Citizens billed property insurance companies doing business in the state for the payments on those bonds. The insurers passed that cost along to policyholders across the state. But the state Legislature, at the time flush with cash, passed a law that gives property owners a tax credit on their annual income tax returns to rebate those fees.
Citizens Chief Financial Officer Steve Cottrell said Citizens can arrange its payment schedule so that the current assessment, 3.74 percent of property insurance premiums, does not increase for policyholders.
The assessment has been steadily dropping, Cottrell said. The assessment will still continue to go down with the additional borrowing, but the percentage will decrease more slowly, he said.
Right now, the average homeowner pays $54 a year to cover the bond payments, according to Citizens.
It’s highly possible that the state wouldn’t have to pay the entire amount of the rebates on the additional borrowing, Cottrell said, because many taxpayers fail to claim the tax credit on their income tax returns.
From 2008 to 2012, property owners paid around $471 million in Citizens assessments, according to the state Insurance Department. Policyholders have only claimed around $184 million in rebates so far.
Cottrell said Citizens had only one other financing option: passing “a regular assessment” on property insurers. The insurers also typically pass this fee along to their policyholders, and policyholders would not be able to claim a state tax credit on that fee.
Sen. Dan “Blade” Morrish, R-Jennings, a Citizens board member who also sits on the Senate Insurance Committee, said he has no doubt that if Citizens passed a regular assessment, the state Legislature would be dragged into the issue.
Cottrell said Citizens’ current cash crunch is mainly the result of paying $340 million more in Katrina- and Rita-claims than the amount it borrowed in 2006.
In addition, last year Citizens paid $145 million in class-action lawsuit settlements and still owes $40 million, Cottrell said. A February hailstorm in south Louisiana is expected to generate $40 million in claims.
The 2006 bond contract allows Citizens to borrow an additional $100 million, Cottrell said. The tax rebate for those debt payments would mean around a $5.4 million hit each year for the state’s general fund.
“If the administration is so concerned about $5 million, where were they when we had these class-action lawsuits?” Morrish said.
DiResto said by borrowing more money, Citizens will divert resources from critical needs for the state, like education and health care.
Board member Gene Galligan said in the mid-1990s Citizens passed a regular assessment to cover hurricane claims, and property insurers left the state in droves.
Afterward, there were less than 20 property and casualty companies left writing business in the state, Galligan said.
“We talk about affordability and accessibility (to coverage). If we do that regular assessment, we’ll have neither,” Galligan said.
Board members asked Chairman Denise Brignac, chief deputy commissioner of the Insurance Department, what Insurance Commissioner Jim Donelon wanted to do.
Donelon was in Washington, D.C., for the National Association of Insurance Commissioners’ reception for its new CEO, former Sen. Ben Nelson.
Brignac said Donelon would prefer the board take no action Thursday.
On Wednesday, Donelon had said he would prefer Citizens Finance Committee take another look at the issue and report back at the April board meeting.
Board member Sam Little said he knows Donelon has business elsewhere, “but his main business is here. He should have been here.”
Both Morrish and Cottrell said Citizens shared its information with Jindal’s Commissioner of Administration Kristy Nichols a month ago.
Neither Nichols nor anyone else from the Jindal administration attended the board meeting, Morrish said. That means the administration is not interested or not paying attention.
The board voted 9-2 in favor of the bond issue. Voting in favor were Eric Berger, Fred Bosse, Jerry Carlisle, Galligan, Little, Craig LeBouef, Eugene Montgomery and Morrish. William Starr and Jim Napper, state Treasurer John Kennedy’s representative on the board, voted against the measure.