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The Honolulu Advertiser
Posted on: Sunday, July 21, 2002

Add raid on hurricane fund to Cayetano's legacy

By Michael Hamnett, Gary Chock, Scott Clawson and Gerald Peters

Gov. Ben Cayetano's raid on the Hawai'i Hurricane Relief Fund will earn him yet another dubious legacy which will become evident when (not if) the next hurricane hits Hawai'i.

Hurricane 'Iniki kicked up debris at the height of its power, spreading destruction in the middle of Lihu'e, Kaua'i, on Sept. 11, 1992. The state hurricane relief fund was established following the devastation of Hurricane 'Iniki to reduce the risk of future losses from hurricanes.

Advertiser library photo • Sept. 11, 1992

Rather than using the money for hurricane protection or refunding it to those who paid into it, the Hurricane Reserve Trust Fund has been raided for $29 million. About $23 million was taken by the Legislature to help the governor balance the state budget.

An additional $6 million in interest income was supposed to be designated for hurricane protection grants for homeowners.

The governor allowed the money to be moved into the general fund but killed the accompanying language that would move the money out of the general fund and into the homeowner grant program when appropriate.

Now, through a gubernatorial bait-and-switch shell game, this $6 million also will be used to balance the state budget. What is almost worse, the bill diverts all future interest earned by the remaining $191 million in the hurricane relief fund into the general fund for unrestricted use by state government.

The governor's veto killed the first $2 million appropriation out of what was supposed to be the first of a three-year, $6 million pilot program of matching grants to owners of condominium and single-family homes so they could strengthen their homes.

The news media picked up that the governor effectively killed the grant program. But the bait-and-switch with the matching grant money going into the general fund appears to have gotten no media attention.

The matching grant program had almost unanimous support from the Legislature. The leadership and money committee chairmen of both houses tried desperately to preserve the trust fund for future use, to invest interest in the mitigation grants and to help the governor balance the budget.

Cayetano's unilateral decision to sweep up the additional $6 million makes it clear that he believes he can do as he pleases with the hurricane fund. It also says to voters that the state government is entitled to take the handsome "profit" or "surplus" from premiums and fees contributed by former fund policy holders and other businesses without any significant expenditure for hurricane protection or effort to avert a future insurance crisis.

What faith will Hawai'i's homeowners have in the hurricane fund when the state proposes to reactivate it after the next hurricane?

Cayetano's line-item veto killed the only major state program that would have addressed the underlying problem: Hawai'i's existing building stock is at risk of catastrophic loss from a future hurricane, and unless something is done about that, we will have another insurance crisis.

The veto tells private insurers that nothing needs to be done to reduce the risk of losses and that they should raise rates if they must. It shows that the state administration can completely ignore an 18-month, $750,000 hurricane risk study, ordered by the Legislature at the governor's urging, that validated the feasibility of the program the governor killed.

Public- and private-sector experts who have worked years on mitigation produced a feasibility study with a clear conclusion: For every $1 invested by the matching grant program, $7 will be saved in future losses from a hurricane like 'Iniki, which devastated Kaua'i in September 1992.

The veto message assailed former hurricane-fund policyholders for being the "only" group eligible, but failed to mention that after the first year, the program would be open to everyone.

The veto message also failed to mention that the program originally proposed to the Legislature was for $10 million a year in trust-fund interest for three years but was cut to $2 million a year to help the governor balance the state budget.

The governor also ignored the economic benefits of the grant program to the state. Homeowners would have matched every grant dollar invested, and the program would result in about $3.8 million per year in hardware sales and contracts for numerous small businesses statewide.

The idea that the hurricane fund should actively work to reduce the risk goes back to the establishment of the fund. The fund was created to develop and implement a program to reduce the risk of future losses.

In 1995, a risk-based premium structure was developed that provided premium reductions for those who installed hurricane clips and took other steps to protect their homes.

In 1997, Cayetano wrote a member of our group: "I share your concern for the policyholders of the HHRF, and the important role hazard mitigation can play in any long-term solution to the hurricane insurance problem in Hawai'i."

In 2000, he approved the legislation requiring the grant program feasibility study. In 2001, he vetoed a bill for a pilot program on the grounds that the feasibility study was not complete.

In 2002, he vetoed legislation authorizing a program based on the recommendations of the study he demanded.

It was the governor who first politicized the debate over the hurricane fund to the point of paralysis. It was he who first proposed a rebate. He withdrew that, then he proposed UH scholarships, then he proposed a raid on the entire trust fund. Fortunately, the Legislature did not let him get away with that.

Those of us who have actively promoted the mitigation grant program are left with the impression that state Sen. Bob Hogue (R-Kane'ohe, Kailua) was right last year when he predicted that we advocates for hurricane strengthening were nothing but a diversionary pawn in the raid strategy. Apparently we were.

Perhaps the biggest irony in all of this is that the net result from the $750,000 feasibility study might be an increase in insurance premiums for some Hawai'i homeowners.

Now there are no mitigation grants or tax credits to help the homeowners strengthen their homes and get premium reductions from their insurance companies. But it is possible that insurers might now have a rationale for trying to raise property insurance premiums for people who live in the riskier homes.

The hurricane fund board of directors should set up a grant program on their own. Many believe the board has had that authority all along under its enabling legislation.

Who knows when nature will teach us another lesson? Apparently two hurricanes and one insurance crisis are not enough when others are doing the suffering. Inevitably, we will suffer future hurricane losses.

When it happens, people will remember this raid on the trust fund. They will also know that trust-fund interest should have been used to strengthen and protect their homes rather than as a Band-Aid for a bleeding state budget. The hurricane trust fund money must be maintained as a security reserve and invested in hurricane protection.

If not defended, all the money will soon be consumed by the state's parasitic attack.

Michael Hamnett is the director of the University of Hawai'i Social Science Research Institute and a member of the Hawai'i Hurricane Relief Fund technical advisory committee; Gary Chock is a structural engineer; Scott Clawson was operations manager of the Hawai'i Hurricane Relief Fund from 1994 to 2000; and Gerald Peters is legislative co-coordinator for the Hurricane Mitigation Ad Hoc Task Force and president of Hurricane Protection Systems Inc.