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Hurricane Sandy Will Make the Fiscal Cliff Deeper: Street Whispers

The issue for New York and New Jersey is threefold, as local officials outline storm costs that may soon fall into the a wider congressional budget debate.

Both states are in the process of filling budget deficits, which ratings agency Standard & Poor's still expects to run between $1 billion and $3 billion in coming years, indicating fiscal stress prior to the Hurricane's landfall. Sandy also was a serious blow to state agencies like the Metropolitan Transit Authority and Port Authority, which face a total of nearly $7 billion in damages and economic loss. In the immediate wake of the storm, S&P said those agencies could see ratings downgrades if 'Sandy's effects are meaningful and longer term,' but it hasn't yet disclosed the rating impact of recent loss projections.

Meanwhile, even worst-case projections of insurance industry payouts signal storm damages and private sector economic loss will come in well above covered claims. The Property Claim Services, an aggregate of insurers projected storm claims, calculates insured losses will be $11 billion, while competitors AIR Worldwide and Eqecat have increased loss estimates as high as $25 billion. Reinsurer Swiss Re says it may face an economic hit.

Finally, unlike southern and mid-Atlantic coastal states, New York and New Jersey have little set aside for hurricane and flood related losses, given the rare occurrence of Sandy's northerly landfall and crippling storm surge.

As Sandy's damages grow and local officials prepare to push for federal aid, the ultimate question is whether a budget weary lawmakers in Washington will be willing to let U.S. taxpayers foot the storm's bill, amid uncertainty on the frequency of storms and whether the nation is already poised to run off a 'fiscal cliff.'

-- Written by Antoine Gara in New York

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