BILL ANALYSIS
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THIRD READING
Bill No: AB 43
Author: Blakeslee (R)
Amended: 6/25/09 in Senate
Vote: 21
SENATE BANKING, FINANCE, AND INS. COMMITTEE : 8-3, 6/22/09
AYES: Calderon, Florez, Harman, Kehoe, Liu, Lowenthal,
Padilla, Wolk
NOES: Correa, Cox, Runner
NO VOTE RECORDED: Cogdill
SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8
ASSEMBLY FLOOR : 78-0, 5/28/09 - See last page for vote
SUBJECT : California Earthquake Authority: employees
SOURCE : Author
DIGEST : This bill, without altering the three percent of
premiums cap on California Earthquake Authority (CEA)
operating costs, amends the CEA enabling statute to remove
a 25 person cap on the number of civil service employees
the CEA may hire and authorizes 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.
CONTINUED
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ANALYSIS :
Existing law:
1. Established in 1996 the CEA 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 three
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,
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
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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 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 and with other national
programs that further California's disaster
preparedness, protection and mitigation goals.
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E. Other programs, support efforts, and activities
the board deems appropriate to further the
authority's mitigation and mitigation-related
goals.
Background
According to the author's office, the CEA'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 this bill, the CEA will
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 to other homeowners.
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".
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.
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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
SUPPORT : (Verified 7/7/09)
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United Policyholders
OPPOSITION : (Verified 7/7/09)
Department of Finance (Prior Version)
ARGUMENTS IN SUPPORT : According to the author's office,
the Working Group on California Earthquake Probabilities, a
multi-disciplinary group of scientists and engineers from
the United States Geological Survey and the Southern
California Earthquake Center, forecasts a 99 percent chance
of a magnitude 6.7 or greater earthquake striking
California within the next 30 years. It is estimated that
if the earthquake's epicenter is in a highly populated area
such as Los Angeles, the damage could be in the billions in
residential and business losses. The author's office also
states that in San Francisco, 80 percent of the weakest
wood-framed buildings are expected to collapse or become
damaged beyond repair in a large earthquake.
The CEA maintains an existing fund, known as the Loss
Mitigation Fund, to create a statewide residential retrofit
program to benefit the public as well as CEA policyholders.
This fund has approximately $12 million. However,
previous programs started by the CEA to retrofit
residential property have not been successful. An early
effort resulted in a few retrofits and one loan. Another
effort, the State Assistance for Earthquake Retrofitting
Program, established in several San Francisco Bay Area
counties, received 17,000 phone inquiries, and performed
4,772 assessments, but resulted in only 31 consumers
undertaking retrofit activities. The author's office
states that this bill will make it possible for the CEA to
employ a chief mitigation officer and establish a
successful retrofit program.
ARGUMENTS IN OPPOSITION : While the intent is to allow
for the CEA to hire additional staff for an effective
mitigation program, the Department of Finance is opposed to
this bill because it creates cost pressures and removes
oversight on CEA growth by eliminating the cap on the
number of civil service employees the CEA can hire.
Additionally, it may not be the ideal time to create a new
program amidst the current economic climate.
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ASSEMBLY FLOOR :
AYES: Adams, Ammiano, Anderson, Arambula, Beall, Bill
Berryhill, Tom Berryhill, Blakeslee, Block, Blumenfield,
Brownley, Buchanan, Caballero, Charles Calderon, Carter,
Chesbro, Conway, Cook, Coto, Davis, De La Torre, De Leon,
DeVore, Duvall, Emmerson, Eng, Feuer, Fletcher, Fong,
Fuentes, Fuller, Furutani, Gaines, Galgiani, Garrick,
Gilmore, Hagman, Hall, Harkey, Hayashi, Hernandez, Hill,
Huber, Huffman, Jeffries, Jones, Knight, Krekorian, Lieu,
Logue, Bonnie Lowenthal, Ma, Mendoza, Miller, Monning,
Nava, Niello, Nielsen, John A. Perez, V. Manuel Perez,
Portantino, Price, Ruskin, Salas, Saldana, Silva,
Skinner, Smyth, Solorio, Audra Strickland, Swanson,
Torlakson, Torres, Torrico, Tran, Villines, Yamada, Bass
NO VOTE RECORDED: Evans, Nestande
JJA:do 7/7/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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