Now, The Financial Aftershocks

Financial Aftershocks The cleanup may top $10 billion, and the whole U.S. will pay

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The quake was far and away the costliest natural disaster in U.S. history in terms of dollars -- thankfully, not lives. The confirmed death toll reached 64, and seems very nearly complete. Only six people are still listed as missing; probably only one or two bodies, if any, remain to be dug out of the mangled cars on I-880. More than 3,000 people were injured and 14,000 made homeless. Estimates of property damage, however, are rising rapidly. The unofficial tally hit $7.2 billion last week, and is expected to top out somewhere between $10 billion and $12 billion -- enough to produce a financial aftershock that will reverberate throughout California and the country.

Only about one in five Bay Area homes was covered by earthquake insurance, and generally for only 85% to 90% of its value. (Earthquake insurance can cost as much as $800 a year for a $200,000 house.) Jack Byrne, chairman of Fireman's Fund, figures that insurers will eventually shell out $2.5 billion to repair earthquake damage. They stand to recover perhaps two-thirds of that from international reinsurers -- Lloyd's of London is the biggest -- which protect insurers against catastrophic losses. Still, the earthquake claims, coming less than a month after the devastation caused by Hurricane Hugo, could set off a chain reaction. Reinsurers might become reluctant to continue backstopping American insurers, which in turn would write fewer policies and raise premiums -- and not just on earthquake insurance.

( California, where America's tax revolt began in 1978 with Proposition 13 rolling back property levies, will have to consider a tax boost. The state has begun payments out of a $1 billion emergency fund, but Governor George Deukmejian does not intend to drain that fund, and even if he did, more would be required. The Governor is expected to call the state legislature into special session in another week or so to decide how much more relief is needed and how to pay for it. It is hard to see how any significant amount could be made available without a hike in either sales or gasoline taxes. Deukmejian, who has taken a Bush-like antitax position, said last week that such a boost "would be a last resort."

In Washington Congress quickly passed, and President Bush signed, a measure making $3.4 billion available to disaster victims, mostly in California; $2.85 billion of that will be new money. Legislators pointedly exempted the relief funds from the spending cuts mandated by the Gramm-Rudman-Hollings law, but, in a somewhat surprising burst of honesty, agreed to count them as part of the budget deficit. Though New York Democratic Senator Daniel Patrick Moynihan asserted that the relief money will have to be made up by cuts in other programs, that is most unlikely, and no one in Washington will even whisper the T word. Most likely, the $3 billion, and more that California lawmakers warned they will request later, will be financed by simply running the money- printing presses a bit faster and making the budget deficit larger and more intractable.

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