Fla. paying Berkshire $224 million so it can borrow billions if needed for hurricane insurance
Jul 30, 2008
Chicago Tribune--July 29, 2008
By BILL KACZOR
Associated Press Writer
TALLAHASSEE, Fla. (AP) _ Florida will pay $224 million to Berkshire Hathaway Inc. for a guarantee that the state can borrow up to $4 billion if necessary to help cover future losses by its emergency hurricane insurance fund.
Gov. Charlie Crist and Chief Financial Officer Alex Sink reluctantly voted to approve the deal Tuesday. The State Board of Administration’s third member, Attorney General Bill McCollum, voted no.
"It is a $224 million opportunity for Berkshire Hathaway to make money on us," McCollum said. "I just don’t think it’s a good deal for the state."
That’s because there’s only a 3 to 4 percent chance the state will ever need the money, he said. McCollum said he also thought the federal government would give the state low interest loans and other help if disaster should strike.
The agreement with Berkshire Hathaway, the conglomerate headed by billionaire investor Warren Buffett, will allow the emergency borrowing by Florida Hurricane Catastrophe Fund, which provides backstop coverage for insurance companies.
State officials were worried that without the guarantee, which would kick in if losses exceed $25 billion, the fund might be unable to borrow such large sums due to the tight credit market.
Sink said she also once questioned the wisdom of the deal but was swayed by the state’s recent efforts to float a smaller bond issue to cover 2005 storm losses.
"We had an enormous amount of difficulty in placing that $625 million this summer at a pretty pricey rate," Sink said. "I guess that just gave me a great deal of pause."
Crist also said he’d like to spend the money on other things such as school teachers, but that the deal would help him sleep better.
"The kind of things that keep you awake at night as a governor are what might come to our state and the risks that may occur," Crist said.
Berkshire Hathaway didn’t immediately respond to an e-mail seeking comment.