Monday, August 29, 2005

Congressional Budget Office Says Asbestos Comp Fund May Not Cover Claims

The Congressional Budget Office released a report last week revealing that the $140 billion asbestos compensation fund (S. 852), currently awaiting a vote on the Senate floor, may not be adequately funded.

According to the CBO, the federal government would have to borrow around $8 billion to stay afloat during the first ten years of its existence.
The interest cost of this borrowing would add significantly to the long-term costs faced by the fund and contributes to the possibility that the fund might become insolvent. Under the provisions of section 405, the fund would have to stop accepting new claims (a process known as “sunset”) if its current and future resources become inadequate to fulfillall existing and anticipated obligations, including its debt obligations.
The CBO also says that it is impossible to know whether or not the $140 million will be sufficient over the next fifty years. Maybe yes, maybe no:
CBO expects that the value of valid claims likely to be submitted to the fund over the next 50 years could be between $120 billion and $150 billion, not including possible financing (debt-service) costs and administrative expenses. The maximum actual revenues collected under the bill would be around $140 billion, but could be significantly less. Consequently, the fund may have sufficient resources to pay all asbestos claims over the next 50 years, but depending on claim rates, borrowing, and other factors, its resources may be insufficient to pay all such claims.

A more precise forecast of the fund’s performance over the next five decades is not possible because there is little basis for predicting the volume of claims, the number that would be approved, or the pace of such approvals. Epidemiological studies of the incidence of future asbestos-related disease and the claims approval experience of private trust funds set up by bankrupt firms can be used to indicate the range of experience of the federal asbestos trust fund might face, but those sources cannot reliably indicate the financial status of the fund over such a long time period.
Dow Jones news service says that both sides will find something to complain about:
Unions opposed to the bill will point to the near-term shortfalls to argue that the trust isn't adequately funded. On the other hand, business groups will note the uncertainty of the trust's long-term viability to argue that payments to victims should be less generous and criteria for making claims should be more strict. Specter and Leahy countered that "even in the range of uncertainty, ... our legislation - with $140 billion - is reasonable and realistically calculated to cover the claims."
That the verdict of the CBO is not completely clear is evident from the headlines over the past couple of days.

US Asbestos Fund could Fall Short - Budget Office , Planet Ark, NY

Analysis Says Asbestos Plan Might Work, Washington Post

US Budget Office Says Federal Asbestos Fund Could Be Insufficent ... Insurance Journal
Related Articles
Posted by at
Labels: