BILL ANALYSIS
SENATE COMMITTEE ON BANKING, FINANCE,
AND INSURANCE
Senator Ronald Calderon, Chair
AB 43 (Blakeslee) Hearing Date: June 22,
2009
As Amended: June 17, 2009
Fiscal: Yes
Urgency: No
SUMMARY Without altering the 3 percent of premiums cap on CEA
operating costs, would amend the California Earthquake Authority
enabling statute to remove a 25 person cap on the number of
civil service employees the CEA may hire and will authorize
contracting for the services of a chief mitigation officer,
whose duties shall be established and directed by the CEA board
to support and enhance the authority's various mitigation
programs, including collaborative efforts with public and
private entities.
DIGEST
Existing law
1. Established in 1996 the California Earthquake authority
as a privately financed publicly managed entity regulated
as a monoline private earthquake insurer by the Department
of Insurance (DOI).
2. Provides for CEA oversight via a five-member Governing
Board that includes the Governor, State Treasurer,
Insurance Commissioner, and non-voting representatives of
the Speaker of the Assembly and the Senate Rules Committee.
3. Operating expenses of the CEA are capped at 3 percent of
the premium received by the authority.
4. Enables CEA revenues to qualify for an exemption from
federal taxes by virtue of its status as a
quasi-governmental entity with the three voting members
representing statewide elected officials (the Governor,
AB 43, Page 2
Treasurer and Insurance Commissioner).
5. Provides for the CEA to be operated as a private
monocline insurer, regulated by the DOI, including in the
matter of rate approvals, but under the guidance of a
governing board that is obligated to comply with
California's open meeting laws.
6. Establishes in the CEA an earthquake loss mitigation
fund to support programs to retrofit homes to protect
against earthquake damage, with funds set aside annually ,
except insofar as the set aside would impair the actuarial
soundness of the CEA.
7. The CEA is authorized to contract for a Chief Executive
officer, a Chief Financial Officer, an operations manager
and numerous other specialized positions not classified as
civil service positions.
8. Requires the members of the CEA Board and the
Authority's CEO, CFO and operations manager to file
financial disclosure statements with the Fair Political
Practices Commission.
9. The current number of allowed positions for the CEA is
25.
This bill
1. Removes the 25 person limit for CEA civil service
employees.
2. Authorizes the CEA to contract for the services of a Chief
Mitigation Officer (CMO)
3. Makes the CMO's duties subject to establishment and
direction of the CEA board.
4. Duties are proposed to include programs and efforts
supporting and enhancing appropriate authority efforts to
create and maintain all the following:
a) Programs mitigating seismic risk for the benefit of
homeowners, other property owners (including landlords
AB 43, Page 3
with smaller holdings), and the California public.
b) Collaboration with academic institutions, nonprofit
entities, and commercial business entities in joint
efforts to conduct mitigation-related research and
educational activities, and for program activities
mitigating seismic risk.
c) Programs providing financial assistance in the form
of loans, grants, credits, rebates or other financial
incentives that further mitigation of seismic risk,
including, but not limited to, structural and contents
retrofitting of residential structures.
d) Collaborations and joint programs with subdivisions
and programs of local, state, and federal governments.
e) Other programs, support efforts, and activities the
board deems appropriate to further the authority's
mitigation and mitigation-related goals.
COMMENTS
1. Purpose of the bill The bill is designed to enable the CEA
to bring in additional civil service staff resources beyond
the 25 person cap now in place to permit the CEA to meet its
needs for support of routine CEA operations without the
necessity of using the contracting process. The bill is
also designed to raise the level of mitigation efforts by
establishing a post dedicated to that effort subject to
explicit board guidance and direction as described.
2. Background According to the author, the Authority's retrofit
programs to date have been unsuccessful. However with
approximately $12 millions dollars currently in the CEA's
Loss Mitigation Fund, there is a great opportunity to
protect California homeowners by establishing a successful
retrofit program. As prescribed in AB 43, the CEA would be
able to fund approximately 2,280 loans at a given time with
more loan money becoming available on a revolving basis: as
loans are repaid to the Authority, new loans could be made
AB 43, Page 4
to other homeowners.
3. In 2001, a California Bureau of State Audits study of the
CEA noted that its mitigation program was having limited
success. Since the CEA's inception, the mitigation program
has slowly grown and the CEA's 2006 strategic plan goals
includes one to "Encourage Californians to protect
themselves and their property from earthquake damage through
preparedness and mitigation".
4. The privately funded financial structure of the CEA has the
task of creating a capital structure which can back the
earthquake peril the CEA policies underwrite and which can
also, absent a significant earthquake, accumulate over time.
5. At the CEA's 1996 inception, both the 25 person civil
service employee cap and the explicit subordination of
mitigation funding set aside to the actuarial soundness
needs of the CEA Fund made sense as California's CEA
proposal was breaking new and uncertain ground.
6. With 13 years experience, it appears reasonable to afford
the CEA staff structure to the additional flexibility this
bill proposes so that persons needed for routine positions
within the CEA structure can be secured without the
necessity of contracting.
7. The addition of a Chief Mitigation Officer (CMO) is
consistent with sharpening the CEA's focus on mitigation
consistent with the 2001 BSA general perspective.
8. Support . United Policyholders
9. Opposition None
10. Questions The defined array of duties for the proposed Chief
Mitigation Officer is quite comprehensive, which is
appropriate to California's long-standing public policy
favoring advance preparedness and mitigation. The list does
not explicitly authorize participation, subject to board
direction, with other national programs that may further
California's disaster preparedness, protection and
mitigation goals. Would it be appropriate to include this
as part of the scope of responsibility?
AB 43, Page 5
11. Current CEA law subjects the board members and chief
officers subject to FPPC reporting. The CMO position is
being added on a par with the CEO and CFO but is not yet
included in the separate listing that carries the FPPC
filing requirement to support transparency and the impartial
conduct of the public's business. In view of the
significance of the public trust invested in this post for
responsibly and fairly supervising and allocating CEA
millions of mitigation dollars to various entities and
individuals, should the CMO position be added to the list of
required FPPC Act filers?
12. Suggested Amendments One On page 5, line 16, after "chief
financial officer," insert:
"chief mitigation officer,"
13. Suggested Amendment Two On page 6, line 25, after
"governments", insert:
"and with other national programs that may further
California's disaster preparedness, protection, and
mitigation goals"
14. Prior Legislation None
POSITIONS
Support
United Policyholders
Oppose
None
Consultant: Kenneth Cooley (916) 651-4102