BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 1117| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: AB 1117 Author: Fuentes (D) Amended: 6/28/09 in Senate Vote: 27 - Urgency SENATE BANKING, FINANCE, AND INS. COMMITTEE : 11-0, 6/17/09 AYES: Calderon, Cogdill, Correa, Cox, Harman, Kehoe, Liu, Lowenthal, Padilla, Runner, Wolk NO VOTE RECORDED: Florez ASSEMBLY FLOOR : 73-0, 5/14/09 (Consent) - See last page for vote SUBJECT : State Compensation Insurance Fund: board SOURCE : State Compensation Insurance Fund DIGEST : This bill amends the State Compensation Insurance Fund (SCIF) law to clarify, for purposes of SCIF board actions affecting generally applicable rates, that a member of the board of directors is not deemed to have a financial interest, as defined by current law, in a contract of insurance between SCIF and an organization of which any member of the board of directors is an owner, officer or employee. Includes legislative findings that the amendments made by the act are technical in nature, do not change the law, and are intended to clarify that members of the SCIF Board of Directors are not disqualified from participating in decisions. CONTINUED AB 1117 Page 2 ANALYSIS : Existing Law 1. Current Government Code provisions prohibit a public official from using their public position to influence a governmental decision in which the party knows or has reason to know they have a financial interest. 2. For the purposes of this same law, having a financial interest in a decision includes situations where it is reasonably foreseeable that the decision will have a material financial effect, distinguishable from its effect on the public generally, on the public official, on a member of his/her immediate family, or on any of specified situations, including any business entity in which the public official is a director, officer, partner, trustee, employee or holds any position of management. 3. Other Government Code provisions, also applicable to the SCIF Board, prohibit a public official from being financially interested in any contract made by them in their official capacity. 4. Board members of SCIF are subject to the above Government Code law concerning financial conflicts of interest and having an improper financial interest in any contract made by their governing body. 5. The SCIF Board is an 11-member board. 6. An express provision of current SCIF law, in the section prohibiting financial conflicts of interest, states "the existence of a contract of insurance between the State Compensation Insurance Fund and the policyholder member appointed by the Senate Committee on Rules shall not constitute a conflict pursuant to this section." This bill: 1. Adds to the SCIF conflict of interest law to provide, for purposes of SCIF board actions affecting generally applicable rates, that a member of the board of AB 1117 Page 3 directors is not deemed to have a financial interest, as defined by current law, in a contract of insurance between SCIF and an organization of which any member of the board of directors is an owner, officer or employee. 2. States legislative findings that the amendments made by the act are technical in nature, do not change the law, and are intended to clarify that members of the SCIF Board of Directors are not disqualified from participating in SCIF. Background Oversight hearings conducted by the Senate Banking, Finance, and Insurance Committee, in prior legislative sessions. have examined the administration and internal operational controls of SCIF and identified numerous deficiencies, including deficiencies with respect to conflicts of interest generally and more specifically financial conflicts of interest. To address these matters, Section 11770 of the Insurance Code was amended last year to add the provisions described above concerning conflicts of interest, including expressly subjecting board members to the financial conflict of interest provisions described above in the Existing Law section which are found in the Government Code. The SCIF was created by statute in 1914 to act as a workers' compensation insurer for the state and to serve as the workers' compensation insurer of last resort in the private market. The Government Code provisions apply to situations where a public official is an employee or manager of an organization if the public official participates in a decision which it is reasonably foreseeable will have a material financial effect on the organization which is distinguishable from its effect on the public generally. Under the Government Code financial conflict of interest provisions, every SCIF board member who is either a manager or an employee of an organization seeking a contract of insurance with SCIF is currently prohibited from seeking such insurance on terms that it is reasonably foreseeable AB 1117 Page 4 would benefit their organization in a way materially different from the terms available to other members of the public, which should reasonably be construed here to mean other similarly situated businesses. Insofar as all Board members are subject to the above rules under current law, every SCIF Board member is currently prohibited from seeking to obtain a material financial advantage in terms for insurance coverage on behalf of an organization they are a manager of employee which is distinguishable from the terms available to the public. Notwithstanding the above, the stipulation added last fall to the SCIF Board conflict of interest law stating that "a contract of insurance" between SCIF and "the policyholder member appointed by the Senate Committee on Rules shall not constitute a conflict pursuant to this section" can be construed to imply that such a contract between any other board member and SCIF "shall" constitute a conflict, even if it passes scrutiny under the more stringent Government Code provisions. FISCAL EFFECT : Appropriation: No Fiscal Com.: No Local: No SUPPORT : (Verified 6/26/09) State Compensation Insurance Fund (source) ASSEMBLY FLOOR : AYES: Adams, 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, Evans, Feuer, Fletcher, Fong, Fuller, Furutani, Galgiani, Gilmore, Hagman, Hall, Harkey, Hayashi, Hernandez, Hill, Huber, Huffman, Jeffries, Jones, Knight, Krekorian, Lieu, Logue, Bonnie Lowenthal, Ma, Mendoza, Miller, Monning, Nava, Nestande, Niello, Nielsen, John A. Perez, V. Manuel Perez, Portantino, Price, Ruskin, Salas, Silva, Skinner, Solorio, Audra Strickland, Swanson, Torlakson, Torres, Torrico, Tran, Villines, Yamada AB 1117 Page 5 NO VOTE RECORDED: Ammiano, Fuentes, Gaines, Garrick, Saldana, Smyth, Bass JJA:mw 6/28/09 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END ****