Quietly negotiated during the past month with Gov. Charlie Crist's office, the deal pays the billionaire in exchange for a pledge to buy $4 billion in bonds if Florida's hurricane Catastrophe Fund needs a bailout this year.
Crist called the move a responsible step to ensure that the Cat Fund can meet its obligations if storms this year cause more than $25 billion in residential losses.
But the unusual arrangement was roundly criticized by the two other trustees on the State Board of Administration, Attorney General Bill McCollum and Chief Financial Officer Alex Sink, who called it a steal for the billionaire Nebraska investor.
"I think this is not a good deal at all," said McCollum, who said Florida stands only a "3 to 4 percent likelihood" of a catastrophic storm that would trigger the deal.
Sink, a Democrat, chided the Republican-led Legislature for passing on her plan last spring to reduce the fund's liability.
"The truth of it is we're kind of sitting here paying part of the price for the Legislature's inaction," she said.
Because of 2007 reforms meant to lower premiums to homeowners, the Cat Fund is liable for as much as $29 billion to reimburse insurers for claims if a Katrina-sized hurricane strikes densely populated South Florida or Tampa Bay.
Because the fund has only about $8 billion in cash, the state would have to sell bonds after a big storm, with no certainty that battered financial markets would respond.
For $224 million taken from Cat Fund reserves, his conglomerate will pledge to buy $4 billion in bonds if the fund needs the money this year.
The bonds would pay an attractive 6.5 percent interest rate. They would be paid off over 30 years by assessments on insurance premiums.
Financial adviser John Forney told the trustees all three options available to the state had drawbacks. Private-market reinsurance would cost five times more than Buffett wanted, he said, while selling bonds in advance of a storm would be hard.
The trustees also differed on whether the $224 million would have to be paid back by consumers, as SBA acting director Bob Milligan recommended.
"There are no free lunches," Milligan said.
Crist disagreed and voted against it. By the end of the day, Milligan relented and said the agency would tap its cash reserves to pay for the deal.
"We've already got the money in the bank. We'll spend it. The taxpayers have already given that money," the governor said.
It may be a moot point if a bad storm requires big payouts by the Cat Fund.
"Somewhere down the read there will be an assessment to collect this," said Sam Miller of the Florida Insurance Council.
"Do you pay for it now or later?"
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