The state’s property insurer of last resort plans to raise homeowner’s rates an average of 7.7 percent statewide this year.

In other action, Louisiana Citizens Property Insurance Corp.’s board voted Thursday against borrowing money to cover an expected $119 million shortfall.

The rate increase is being driven in large part by higher reinsurance costs for coastal areas south of the Gulf Intracoastal Waterway, Chief Financial Officer Steve Cottrell said. State law, with few exceptions, requires Citizens to charge 10 percent more than private insurance companies.

Although the overall rate increase is 7.7 percent, under the proposed rates 93 percent of Citizens homeowner’s policyholders would see an average increase of 5.3 percent, Cottrell said. Seven percent of policyholders — those in the Coastal Plan, the area south of the Gulf Intracoastal Waterway — would see a 30.2 percent increase; all but 2 percent of that is for additional reinsurance costs.

Insurance Commissioner Jim Donelon has recommended Citizens increase its reinsurance to cover the damage caused by the kind of storm that occurs once in 100 years.

Citizens hasn’t bought that much reinsurance before, board member Eric Berger said. In 2012, Citizens had enough reinsurance to cover the damages from a 1-in-45-year or a 1-in-50-year storm.

The new rates, if approved by the state Department of Insurance, would go into effect June 1. The rates vary by area.

In East Baton Rouge Parish, homeowners rates will increase an average of 7.4 percent, Citizens records show. Citizens says that is because State Farm, the most expensive private insurer in the parish, raised rates by the same percentage.

Other overall proposed rates include Ascension, up 7.8 percent; Livingston, up 10.9 percent; and Lafayette, down 30 percent.

Most of Orleans Parish would see a decrease of 2.1 percent, while Jefferson Parish would see rates rise 6.1 percent. However, in areas south of the Intracoastal Waterway, homeowners in those parishes would see rates increase 25 percent.

Meanwhile, Citizens board voted to sit tight and closely monitor its ongoing cash shortage.

Sen. Dan “Blade” Morrish, R-Jennings, a board member, offered the motion. Citizens can always borrow money if it has to but that may not be necessary if there are no hurricanes, Morrish said. Citizens generates $2 million more each month than its non-hurricane expenses and that money could eventually fill the shortfall.

The board voted 6-5 in favor of Morrish’s suggestion. Chairwoman Denise Brignac cast the deciding vote. In addition to Morrish and Brignac, board members Fred Bosse, Eugene Montgomery, Jim Napper and William Starr voted for taking no action. Board members Eric Berger, Gene Galligan, Craig LeBouef, Sam Little and Johnny Reeves voted against Morrish’s motion.

Berger said the time to do nothing had passed.

In a presentation to the board, Cottrell said Citizens faced a serious cash shortage.

Last year, Citizens had to pay a $104 million penalty in the first phase of a class-action lawsuit over taking too long to begin adjusting claims from hurricanes Katrina and Rita. Citizens also had $75 million in Hurricane Isaac claims.

Citizens ended the year with $84 million in cash, but the insurer needs to keep $125 million on hand to protect its credit rating and avoid higher reinsurance and borrowing costs.

The insurer still owes $63 million to settle two class-action lawsuits and must also return $10 million to coastal policyholders, Cottrell said. Citizens has to return money because the state Legislature passed a law during the last session that exempts policyholders in 12 parishes from paying the 10 percent Citizens must charge over the rates of private insurers.

Cottrell said the board had three options to cover the shortall: do nothing, levy an assessment on property insurers or borrow the money by issuing bonds. Citizens staff had recommended borrowing $100 million and drawing on the insurer’s $75 million line of credit to maintain the $125 million cash reserve.

Citizens borrowed close to $1 billion through a bond issue to cover Hurricane Katrina claims. The bond agreements allow Citizens to borrow more if the Katrina claims exceeded the original amount.

Cottrell said Citizens can issue up to $100 million more in bonds under the agreements.

A bond issue offers several advantages over the other options, Cottrell said. Interest rates are at an all-time low now, which means Citizens would have lower borrowing costs.

The money would be available in time for the 2013 hurricane season, which begins June 1, Cottrell said. The bond issue would not increase the current assessment on property insurers. The assessment, now 3.7 percent, is typically passed along to policyholders.

However, with prompting from LeBouef, Cottrell admitted that an assessment would be cheaper in the long run.

Napper said the cost to borrow $100 million is close to $42 million.

Little said saving money doesn’t hold much sway when it comes to the assessment.

“There’s nothing that galls people more than the assessment even if it is a little cheaper in the long run,” Little said.

People in north Louisiana are sick of paying for south Louisiana residents’ insurance, Little said.

Before the vote, Cottrell told board members lower cash reserves could also lower Citizens’ credit rating and increase reinsurance costs.

And levying a new assessment would also increase reinsurance costs for the insurance industry and make Louisiana less attractive for insurers.