HOUSTON—Rebuilding after Hurricane Ike will take insurance.  And the owners of buildings near the coast probably didn’t turn to Nationwide or State Farm for that coverage.

In fact, they couldn’t.  Instead, they turned to you – the taxpayer.

“Private insurance cannot get the rate to sustain losses along the coast,” Jerry Johns of the Southwest Insurance Institute said.

Most private insurance companies stopped covering coastal properties after Hurricanes Rita and Katrina.

Since then, the Texas Windstorm Insurance Association has been the only option for coastal homeowners, and it’s backed by the State of Texas.

In 2001, 69,000 people held windstorm policies.  Today, there are 225,000. 

In Galveston County alone, Texas taxpayers back policies worth $19 billion.

For years, state lawmakers have worried that insurance claims after a direct hit on Galveston would blast a hole in the state budget. 

Now, that’s exactly what’s happening.

“If there’s not enough money in the pool for claims, the state is on the hook for those claims and so we would have to pay out those claims from the general revenue fund,” Rep. Garnet Coleman said.

One big question is whether the Texas Windstorm Insurance Fund just covers damage caused by wind, or if it also covers damage by the storm surge, which is water pushed by wind.

The policies say the storm surge is not covered, but some lawmakers are asking the state insurance commissioner to reconsider. That would help the 80 percent of Galveston residents who did not have separate flood insurance, but it would make the financial burden worse for taxpayers.

So far, 42,000 people have made Ike-related claims to the Texas Windstorm Insurance Fund. To pay them, the state is likely to turn to private insurance companies to help bear the cost.  In exchange, those companies would get a $2.1 billion tax break.

But if we impact the general revenue fund to the tune of an anticipated $2.1 billion, then the fund is going to be unable to finance other programs, like education.

Two billion dollars is roughly what the state spends on six months of prisons and state troopers. It could fund every school in Texas for a month.  Take that money and spend it on a hurricane instead, and you have a problem.

“It’s better to go ahead and borrow the money at low rates than to go ahead and spend every dime of cash you have that could fund public school, colleges and the like,” Coleman said.

Coleman thinks the state should sell bonds to cover the cost. Lawmakers might also dip into the budget surplus, which could mean less money for the property tax cuts lawmakers had hoped to pass.

The bottom line is, cleaning up after Ike will be expensive. 

It’s just the kind of cleanup that insurance companies feared so much, they pulled out altogether.

So that leaves only the state to step in, and taxpayers will foot the bill.