The Florida legislative session ended earlier this month with no real reforms to the Florida Hurricane Catastrophe Fund; but a late addition to the state budget attempts to shore up the Cat Fund’s finances through a tax-credit program.
Sponsored by Senator J.D. Alexander (R-Lake Wales), the plan is designed to help shore-up the resources of the Florida Hurricane Catastrophe Fund after lawmakers failed to pass his bill to finance a potential shortfall in the fund’s finances.
“Right now we’re short $3 billion in being able to meet the statutory commitments in the Cat Fund,” said Alexander. “So this is another way to try and piece together enough cash to make it through the coming hurricane season.”
The new proposal creates a new tax credit for insurers and other financial institutions, who will receive a discount for paying their state premium taxes early. The plan calls for insurers and banks to receive up to $1.5 billion in tax credits over 10 years.
The funds raised through the tax credit program would then be lent to the Cat Fund and would be paid back to the general revenue fund later. It would mark the first time the Cat Fund has ever borrowed money from the state’s general revenue fund. That means if the Cat Fund is unable to pay its debt, due to overwhelming hurricane losses, it could have an impact on the state’s credit rating.
Some officials and insurance experts question how the tax credit program, hastily added to the state budget, will work. Cat Fund Chief Operating Officer Jack Nicholson argued that officials from the Cat Fund should have been involved in crafting a program that proposes any significant changes to the Fund. Nicholson also questioned whether legislators even fully understood what the plan entailed.
The program, while providing a new funding source for the Cat Fund, does come with several risks and problems. Unlike the bonds which usually fund the Cat Fund, the tax credit program is not as predictable, officials running the fund cannot be sure how much money will be raised and the costs involved.
“We have no way to evaluate the costs or benefits of the program,” said Nicholson. “That is why we prefer to go the pre-event bonding route. It gives us certainty.”
Nicholson said fund officials are in contact with the governor’s office to make them aware of both the financial concerns and the administrative problems it could create in the Cat Fund.
Gov. Rick Scott can stop the program from taking effect via line item veto, but he has not made any comments yet on whether or not he will do so.
