The state Bond Commission adjourned Thursday without taking a vote on $100 million in borrowing sought by the state’s insurer of last resort.
The abrupt ending to the meeting came after Gov. Bobby Jindal’s administration opposed the borrowing as unnecessary.
Louisiana Citizens Property Insurance Corp. wanted to borrow the money for an expected budget shortfall. The dollars would be repaid by insurance policyholders, who could recoup the expense by applying for tax credits through state government.
Another option available to Citizens would be to declare a deficit and force homeowners across the state to help erase it through an assessment but without a tax credit to recover costs.
Members of the State Bond Commission, which oversees state borrowing, questioned whether Citizens needs the dollars. Citizens already can draw down money from an existing line of credit.
“It’s not clear to me you need that level of reserve,” said Commissioner of Administration Kristy Nichols, the governor’s chief financial adviser.
Citizens officials countered that expenses are unpredictable and that the existing line of credit is problematic because of high interest charges.
The Legislature created Citizens years ago to lower insurance prices by covering high-risk homeowners.
The quasi-public organization replaced two pools — the Fair and Coastal plans — that insured 100,000-plus homeowners.
The switch was designed to ensure that insurance companies no longer were assessed to cover claims when a catastrophe emptied the plans’ funds.
However, Citizens ran into problems when Hurricane Katrina hit in 2005.
The state had to borrow $1 billion to cover claims. The money was repaid through assessments added to each homeowner’s policy.
Eight years after the catastrophic storm, Citizens is grappling with legal bills, other storms and reinsurance costs.
Steve Cottrell, chief financial officer for Citizens, said $75 million is in the bank, with $70 million to $80 million in expenses expected in the next three months.
Citizens needs to pay $30 million in hail storm claims, $17 million on reinsurance and $40 million to close out a lawsuit, he said.
State Treasurer John Kennedy asked Cottrell to give him the outlook for the year.
Cottrell said he expects Citizens to generate $180 million in revenue, which will not cover the $250 million in anticipated expenses.
“In three to four months, we could be down to less than $20 million in cash,” he said. “If the wind blew one night, we couldn’t pay the claims.”
Citizens officials outlined two options:
- Borrow $100 million through tax-exempt bonds and pay it back over time by charging private insurers, who would pass the cost to policyholders. Roughly 60 percent of policyholders likely would file paperwork with the state claiming a tax credit for the cost.
- Declare a deficit and issue an assessment to private insurers, who would pass the cost to homeowners. Under that option, the money would have to be paid quickly without any financial help from the state for homeowners’ added expenses.
Kennedy said he does not favor either option outlined by Citizens.
“You want us to take a vote on this today? Are you sure about that?” he asked.
Richard Robertson, Citizens’ CEO, said his board instructed him to borrow $100 million.
Jim Napper, an attorney in Kennedy’s office, said there is a third option. He said Citizens can use the existing line of credit and wait to see if more borrowing is needed.
Senate President John Alario, R-Westwego, said it would be helpful to consider other options. Alario made a motion for the commission to adjourn. The commission did so without any objection raised.