TRIA Cost Assessed By Budget Office

WASHINGTON–The Congressional Budget Office estimated this week that the Senate version of legislation designed to extend the federal backstop on terrorism risk insurance would cost an estimated one-third less than companion House legislation.

The report is likely to come into play soon as Congress seeks to reconcile the two bills. The current bill, the Terrorism Risk Insurance Extension Act, expires Dec. 31.

CBO's report is a factor because since January the Democratic majority has imposed pay-as-you-go rules requiring that any legislation that adds to government cost must be offset by an increase in revenues or cuts in existing programs.

The issue came up on the House floor when the House bill, H.R. 2761, was debated Sept. 19, and the House Democratic leadership decided to ignore the cost issue despite Republicans' criticism of that decision.

During the debate, Rep. Steny Hoyer, D-Md., House majority leader, committed the leadership to dealing with the issue at a later time.

The problem irked Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee and a primary sponsor of the bill. He called the CBO projection unfathomable “Sanskrit,” because the government wouldn't be called upon to make any expenditures under the program unless there was an attack.

According to the CBO, the Senate bill, the Terrorism Risk Insurance Program Reauthorization Act of 2007, would cost the federal government an estimated $5.1 billion over the next 10 years. Actually, the legislation extends the program for 7 years.

It was passed by the Senate Banking Committee Oct. 17 and is now awaiting floor action.

According to the CBO estimates, the House bill would cost the government $8.4 billion over 10 years.

The House bill, which would extend the program for 15 years, has a higher cost because it includes group life insurance and also extends the program to specifically cover nuclear, biological, chemical and radiation risk. It also lowers the trigger on most risks to $50 million; the Senate retains the current $100 million trigger for federal involvement.

In its report, the CBO conceded “there is no reliable way to predict precisely how much insured damage terrorists might cause, if any, in any specific year.”

Rather, CBO said its projected estimate of the cost of financial assistance provided under the bill represents an expected value of payments from the program–a weighted average that reflects industry experts' opinions of various outcomes ranging from zero damages up to very large damages resulting from possible future terrorist attacks.

“The expected value can be thought of as the amount of an insurance premium that would be necessary to just offset the government's losses from providing this insurance, although firms do not pay any premium for the federal assistance offered by TRIA,” the CBO said.