BRADENTON, Fla. – In the wake of Hurricane Irma, preliminary damage estimates across Florida based on modeling and past experience could exceed $45 billion, according to an economist reviewing the massive storm’s impacts on the state budget.

While the number is staggering, its disclosure is designed to forewarn lawmakers that losses will weigh on the state as it nears a structural budget imbalance in the fiscal 2019 budget and an imbalance in 2020, according to Amy Baker, director of the state Bureau of Economic and Demographic Research.

Massive Hurricane Irma bears down on Florida Sept. 9, a day before making landfall in the Lower Florida Keys as a Category 4 storm with 130 mph sustained winds.
Hurricane Irma bears down on Florida Sept. 9, a day before making landfall in the Lower Florida Keys. National Oceanic and Atmospheric Administration

“The bottom line is even before we start talking about Irma, you are looking at the need to examine structural imbalance because it’s going to be there,” she told the Joint Legislative Budget Commission Friday.

Hurricane Irma took one of the most destructive paths possible for Florida, traversing the state from south to north, initially making landfall Sept. 10 at Cudjoe Key in the lower Florida Keys as a Category 4 storm with 130 mph sustained winds. The same day, it made a second landfall on the peninsula’s Marco Island on the southwest coast as a Category 3 storm with 115 mph winds.

Since Irma swept the state, 48 of the 67 counties in Florida have been under a major disaster declaration, affording them various levels of assistance from the Federal Emergency Management Agency.

The amount of state funds spent on the massive storm so far is not known. Although Irma prompted new state requirements for all nursing homes to quickly install generators following the deaths of nine residents in a sweltering Broward County facility, no bond financing programs have been proposed.

With the state still in response mode, damage and expense estimates have not been released, Alberto Moscoso, spokesman for the Florida Division of Emergency Management, said Monday.

“It is too early to accurately determine the storm's total amount of damage or the recovery cost,” Moscoso said. “Once any estimates are completed, they will be made available to the public.”

Currently, the state is projected to have a fund balance of $52 million in general revenue in fiscal 2019 after the payment of known critical and other high priority needs, Baker said.

However, past experience with hurricanes and related state expenditures will take a toll this fiscal year, and Baker said lawmakers should prepare for a negative balance.

Irma represents what the state’s economists would describe as a “black swan” event, something hard to forecast that could have a high impact on the state budget.

“This one has arrived,” Baker said.

In analyzing the hurricane’s potential cost, she said her agency examined state expenditures in 2004 and 2005, when eight major hurricanes struck the state, versus the state revenues collected during the rebuilding effort in those years.

Two of the biggest state expenses in 2004 and 2005 were the 25% of state matching dollars required to draw down public assistance from FEMA and beach restoration, she said.

Baker pointed out that beach restoration in those years was for isolated areas of the state, not for the entire coastline traversed by Irma.

“The state of Florida typically spends more than the revenue from rebuilding,” she said. “I have no reason to believe this year will be different.”

Another factor, she warned, is that incoming state revenues could decline because residents will be spending cash on insurance deductibles and covering the cost of flood-related damage out of pocket if they don’t have federal flood insurance.

Some 76.4% of Florida’s budget comes from state sales tax revenue. There is no state personal income tax.

The state’s economy has bounced back from the last recession, Bake said, although some categories such as construction still lag pre-recession levels.

Baker also said economists’ projections for state general revenue in the next three years do not consider adverse effects from hurricanes or the mosquito-born Zika virus should it arise again.

“We know from studies that tourism can be very responsive to adverse events,” Baker said, adding that 13% of the state sales tax is generated by tourists.

Florida Gov. Rick Scott, left, surveys the damage left by Hurricane Irma.
Florida Gov. Rick Scott, left, surveys the damage left by Hurricane Irma.

On Tuesday, Gov. Rick Scott said he directed the state’s tourism marketing agency, Visit Florida, to launch an aggressive campaign highlight Florida following Hurricane Irma.

Last year, nearly 113 million tourists came to the state – a record. Florida anticipated exceeding that record amount this year.

“As communities around Florida continue to recover from Hurricane Irma, we are doing everything possible to help families and businesses get back on their feet and get people back to work,” Scott said. “While our top focus remains on the recovery of Florida families, especially those in the Florida Keys and Southwest Florida, we cannot forget about the many communities which rely on Florida’s incredible tourism industry and millions of visitors.”

In terms of Hurricane Irma’s costs this year, Baker said her agency examined the three largest hurricanes to hit the state and their costs in total damages in 2017 dollars.

Hurricane Andrew, a category 5 storm that decimated south Florida in 1992, remains the costliest on record causing just under $46 billion of damage in today’s dollars.

In 2005, Hurricane Wilma struck south Florida as a category 3 causing more than $25 billion in damage.

“Everything we’re hearing about the preliminary estimates that are credible coming out of Irma put [its costs] somewhere between Wilma and Andrew, maybe pushing it more towards Andrew,” Baker told lawmakers Friday. She cautioned that those are “very, very preliminary” numbers.

“It’s just to give you a feel for what we’re looking at in terms of expenditures,” she said.

This week, officials at two of the state’s high-profile property insurers – Florida Hurricane Catastrophe Fund and Citizens Property Insurance Corp. – said they anticipate using cash on hand to pay claims from Irma.

The FHCF and Citizens are both nonprofit self-supporting state agencies. However, most analysts tie Florida’s triple-A ratings to them due to their potential need for state support.

The FHCF, also known as the Cat Fund, provides low-cost reinsurance to private property insurance companies and Citizens directly covers residential losses caused by wind only. Both have “significant” financial resources on hand, Ben Watkins, director of Florida’s Division of Bond Finance, said Tuesday.

“It’s really too early to tell if any bonding will be needed or not,” said Watkins, who is also a director of the State Board of Administration Finance Corp., which sells debt on behalf of the FHCF.

The Cat Fund’s cap on the amount of payments it can make by law is $17 billion. In the aggregate, participating insurers must absorb $7 billion in losses before the agency’s coverage kicks in. The Cat Fund has $14.9 billion in cash reserves, and an additional $2.7 billion of bond proceeds on hand to pay claims, Watkins said.

Citizens , the second-largest property insurer in Florida, now estimates that it will receive about 125,000 claims, most from South Florida and the Keys, spokesman Michael Peltier said Wednesday. The projected number of claims is based on modeling and past experience, he said, adding that it does not include a dollar estimate.

Peltier said Citizens expects to handle the costs with surplus revenue on hand, without the need to issue bonds.

“We’re fairly confident we’ve got the financial wherewithal for this, and a subsequent storm,” he said.

As of Monday, the Florida Office of Insurance Regulation reported that insurance companies across the state have received 372,281 claims so far covering $2.2 billion in insured losses. Those amounts are expected to rise.