By Benton Ives

The Senate passed a seven-year extension of the nation’s terrorism insurance backstop on Friday, after negotiators hammered out a solution to pay-as-you-go issues that had stalled the bill.

The chamber took up the House-passed measure (HR 2761) and substituted the text of a Senate bill (S 2285) that differs in some critical respects from the House version. The bill passed by voice vote.

The House bill would extend the Terrorism Risk Insurance Act (TRIA), which is set to expire Dec. 31, for 15 years and expand its scope to require insurers to make coverage available for nuclear, biological, chemical and radiological attacks.

The Senate version, approved last month by the Banking, Housing and Urban Affairs Committee, would extend TRIA for seven years and make fewer significant changes to the program enacted following the Sept. 11 terrorist attacks.

House and Senate lawmakers now will have to work out differences between the versions before the end of the year.

Lawmakers created the TRIA program in 2002 (PL 107-297). It obligates the federal government to help pay for losses from terrorism once costs for insurers reach a certain threshold.

Majority Leader Harry Reid , D-Nev., lauded passage of the bill on Friday.

“Without this program, terrorism insurance will become unavailable or prohibitively expensive, construction projects would grind to a halt and Americans would lose jobs,” Reid said in a statement.

With the current two-year extension (PL 109-144) set to expire Dec. 31, the insurance and real estate industries have become increasingly worried that a delay in renewal of the program could make it harder for insurers to underwrite policies going forward.

Offset Issue

Before the Senate could act, lawmakers had to work out offsets for the program’s estimated cost under pay-as-you-go budget rules. The rules require new mandatory spending or tax cuts be offset.

According to the Congressional Budget Office (CBO), a seven-year extension of TRIA would increase the deficit by $3 billion over the next five years and $5.1 billion over the next decade.

A CBO cost estimate prompted House lawmakers to include a provision in their bill that would require Congress to expressly approve spending for TRIA after a terrorist attack. That avoided the pay-as-you-go problem, but it drew fire from insurers, who complained that they needed a guaranteed federal backstop.

The Senate took a different tack, building on provisions already in the law that require the insurance industry to repay the federal government for coverage, up to a certain level. That payback would be set at a flat annual rate.

The Senate budget workaround would accelerate the annual repayment plan to meet CBO’s cost projections.

The insurance industry praised passage of the bill.

“A seven-year extension will provide more stability and certainty in the market and will foster long-term investment and economic growth,” said Marc Racicot, president of the American Insurance Association.

“The next step is just as critical. It’s absolutely necessary that the Congress continue their work and reauthorize this program by year’s end,” Racicot added.

With the White House opposed to the House expansion of TRIA’s scope, a final bill almost certainly will have to stick close to the Senate’s formula if it is to win President Bush’s signature.

Treasury Secretary Henry M. Paulson Jr. said Oct. 17 that the Bush administration would not oppose the Senate’s version of the TRIA extension, even though the White House has long wanted to phase out the federal program in favor of private industry coverage.