Budget & Taxes
FL HURRICANE BONDS ON RISE: Six years ago, Florida's government-run property insurer, Citizens Property Insurance Corp., paid Warren Buffett's Omaha, Nebraska-based Berkshire Hathaway Inc. $224 million in exchange for a guarantee that the company would buy bonds issued by the Florida Hurricane Catastrophe Fund Finance Corp., a taxpayer-owned entity that provides backup coverage for insurers, if a storm caused more than $16 billion in damage. But the state won't need to make any such deals this year.
Demand for the state's catastrophe bonds is soaring. In fact, the state quadrupled the size of its bond sale last month, to $1.5 billion. The high level of investor interest is being fueled in part by generationally low municipal bond rates, which have sent investors in search of higher returns. Catastrophe bonds offer higher returns in exchange for higher risk: the potential loss of principal. But investors have been willing to take that risk because a hurricane hasn't struck the state since Wilma in 2005.
"We haven't had a hurricane make landfall in eight years," said Jack Nicholson, who runs the state's catastrophe fund. "I'd rather be lucky than smart any day."
That luck has allowed Citizens Property and the catastrophe fund to amass more than $18.5 billion combined. That wouldn't be enough to cover claims, however, if a hurricane were to hit a major population center like Miami, which according to state estimates, could cause over $80 billion in damage.
The National Oceanic and Atmospheric Administration predicted May 22 that three to six hurricanes would probably form in the Atlantic Ocean this year, with one or two possibly qualifying as major. The hurricane season runs through November in the Atlantic. (BLOOMBERG)
MI LAWMAKERS APPROVE 'GRAND BARGAIN': Michigan lawmakers have given their approval to the bankruptcy exit plan negotiated by federal mediators that has come to be known as the "grand bargain." The nine-bill package, passed with bipartisan support in both chambers and expected to be signed by Gov. Rick Snyder (R), calls for the transfer of $194.8 million from the state's rainy day fund to Detroit's pensioners and provides for long-term oversight of the city's finances by a new state commission. And thanks to $466 million pledged by private benefactors, the deal also ensures that the Detroit Institute of Arts' 60,000-piece collection remains intact.
"It makes pensioners as whole as possible and protects the Detroit Institute of Arts from having its artwork seized and sold off," said state Sen. Tupac Hunter (D).
The "grand bargain" still has to be approved by a majority of Detroit's pensioners, most of whom would have their monthly pension checks cut 4.5 percent under the deal. If they vote the plan down, however, they could face a cut of 27 percent or more. And a federal bankruptcy court judge has already ruled the city's pensions can be cut.
"There's really no value for someone to vote no," Gov. Snyder said at a press conference. "They're putting themselves at risk."
But one of the state's senators, Coleman Young II (D) of Detroit, found a reason to vote "no" on all nine of the "grand bargain" bills. He said the plan's oversight commission, for instance, would legalize "inter-state colonialism" in the predominately African-American city he represents.
"It simply won't do for my city, my friends, my neighbors, my constituents who will be put under the thumb of another body hand-picked by this administration to enact policies in their own best interests, not Detroit's," he said.
Sen. Pat Colbeck (R), one of 17 senators who opposed the pension aid bill, contended that it sets a bad precedent for the next Michigan city that gets into fiscal trouble.
"We need to tighten our state spending, not break open the piggy bank," he said.
Annie Patnaude, deputy director of the conservative group Americans for Prosperity, who testified against the bills, also found fault with the notion that the city's art and other assets shouldn't be sold off to repay its pensioners and creditors.
"What's more important: A painting on the wall or someone's pension?" she said. "Detroit needs to give up some of its assets."
But Senate Majority Leader Randy Richardville (R) said simply, "This was, in my mind, a very responsible vote." (DETROIT NEWS, MLIVE.COM, STATE NET)
MN GOV VETOES LOTTERY LIMITS: Last month Minnesota Gov. Mark Dayton (D) vetoed a bill that would have eliminated online scratch-off lottery games and prohibited the sale of lottery tickets at gas pumps and ATMs in the state.
The governor reportedly anguished over the bill. The state's House and Senate passed it with veto-proof majorities in the closing days of the session.
"I am really torn," Dayton said before making his decision. "I realize that if I were to veto it and they were still in session, they would override my veto."
But although many lawmakers expressed concerns that online lottery sales could increase gambling addiction, the governor said the bill's sweeping curbs on the lottery seemed motivated more by the desire of other gambling interests to protect their turf.
"I am concerned that the real impetus behind this bill was not to protect the citizens of Minnesota, but to protect the interests that now benefit from the status quo," he said. "That is the wrong reason for the legislation to be supported and passed." (MINNEAPOLIS STAR TRIBUNE, STATE NET)
BUDGETS IN BRIEF: The City of Fort Wright in northern KENTUCKY has filed a lawsuit alleging the Kentucky Retirement Systems has made "illegal and imprudent investments" in hedge funds and other "alternative investments" with public pension money. The city claims KRS is legally required to invest the local government pension and retiree health care money it manages only in relatively safe stocks and bonds (KENTUCKY.COM). • FLORIDA Gov. Rick Scott (R), who is up for re-election in November, signed a record $77 billion budget last week without vetoing any of the pet projects lawmakers included in the spending plan as he had done in previous years (ORLANDO SENTINEL). • Last week VERMONT Gov. Peter Shumlin (D) signed a $685.7 million transportation bill, the largest in state history (BURLINGTON FREE PRESS, STATE NET). • OKLAHOMA Gov. Mary Fallin (R) signed legislation shifting newly hired state employees from a traditional pension retirement system to a 401(k)-style retirement plan (ASSOCIATED PRESS, KSWO [LAWTON], STATE NET).
- Compiled by KOREY CLARK
The above article is provided by the State Net Capitol Journal. State Net is the nation's leading source of state legislative and regulatory content for all states within the United States. State Net daily monitors every bill in all 50 states, the District of Columbia and the United States Congress - as well as every state agency regulation. Virtually all of the information about individual bills and their progress through legislatures is online within 24 hours of public availability.
If you are a lexis.com subscriber, you can access State Net Bill Tracking, State Net Full Text of Bills, or State Net Regulatory Text. If you are interested in learning more about State Net, contact us.
For insightful analysis and practical guidance on state and local taxation, explore Bender's State Taxation: Principles and Practice
Discover the features and benefits of LexisNexis® Tax Center.
For quality Tax & Accounting research resources, visit the LexisNexis® Store.
To subscribe to the Capitol Journal and access archived issues go to the State Net Capitol Journal.
For more information about LexisNexis products and solutions connect with us through our corporate site