BILL ANALYSIS                                                                                                                                                                                                    



                                                                  AB 2327
                                                                  Page  1

          Date of Hearing:   April 14, 2010

               ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
                                 Norma Torres, Chair
                    AB 2327 (Harkey) - As Amended:  April 12, 2010
           
          SUBJECT  :   Affordable housing:  risk retention pool.

          SUMMARY  :  Authorizes affordable housing entities to join in an  
          arrangement that provides for the pooling of self-insured claims  
          or losses against tort liability, liability to officers and  
          employees for their acts or omissions, and physical damage to  
          motor vehicles, personal property and real property of the  
          affordable housing entity.  Specifically,  this bill  :

          1)Authorizes an "affordable housing entity" to join one or more  
            other affordable housing entities in an arrangement providing  
            for the pooling of self-insured claims or losses with respect  
            to any of the following:

             a)   Insurance covering any tort liability;

             b)   Insurance covering any employee of the affordable  
               housing entity against his or her liability for injury  
               resulting from an act or omission in the scope of  
               employment;

             c)   Insurance covering any board member, officer, member or  
               volunteer of the affordable housing entity against any  
               liability from any act or omission in the scope of  
               participation with the affordable housing entity; and

             d)   Insurance covering any loss from physical damage to  
               motor vehicles, personal property, real property, or other  
               property owned or operated by the affordable housing  
               entity.

          2)Defines the term "affordable housing entity" to mean  any of   
            the following:

             a)   A housing authority created under the laws of this state  
               or another jurisdiction and any instrumentality of a  
               housing authority;

             b)   A nonprofit corporation organized under the laws of this  








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               state or another state that is engaged in providing  
               affordable housing;

             c)   A partnership or limited liability company that is  
               engaged in providing affordable housing and that is  
               affiliated with a housing authority or a nonprofit  
               corporation that has one or more of the following:

               i)     A financial or ownership interest in the partnership  
                 or limited liability company or the right to acquire that  
                 interest;

               ii)    The power to direct the management or policies of  
                 the partnership or limited liability company; or

               iii)   A contract to lease, manage, or operate the  
                 affordable housing owned by the partnership or limited  
                 liability company.

          3)Defines "affordable housing" as housing developments in which  
            some of the dwelling units may be purchased or rented, with or  
            without government assistance, on a basis that is affordable  
            to individuals of low income as defined in state housing law.

          4)Specifies that the pooling arrangement established by this  
            bill will not be considered insurance, and will not be subject  
            to regulation by the Insurance Commissioner.

          5)Authorizes any insurance pool established pursuant to this  
            bill to include the organization of a separate legal or  
            administrative entity whose duty is to administer the  
            insurance pool, which may be a nonprofit corporation, limited  
            liability company, partnership, trust, or other form of  
            entity, whether organized under the laws of this state or  
            another state operating in another state.

          6)Requires that any insurance pool established pursuant to this  
            bill have initial pooled  resources  of at least $2,500,000  
            and maintain adequate reinsurance to protect against its  
            risks.

          7)Requires all participating affordable housing entities in  
            these insurance pools to agree to pay premiums or make other  
            mandatory financial contributions, as determined by the  
            governing board, that are necessary to ensure a financially  








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            sound risk pool.

          8)Requires all participating affordable housing entities to be  
            given written notice, in at least 10-point type, that the pool  
            is not regulated by the Insurance Commissioner and that the  
            state insurance insolvency guaranty funds are not available to  
            safeguard its risk.

          9)Prohibits these insurance pools from insuring against workers'  
            compensation liability.

          10)Specifies that nothing in this bill shall be construed to  
            authorize an affordable housing entity to pay or insure for  
            any claim or judgment against an employee of the affordable  
            housing entity for punitive or exemplary damages.  

           EXISTING LAW  

          1)Authorizes local agencies to enter into a joint pooling  
            agreement to form a single statewide insurance pooling  
            arrangement for the payment of tort liability or public  
            liability losses incurred by those agencies.  The agency is  
            known as the Local Agency Self-Insurance Authority.

          2)Authorizes local public agencies to self-insure against  
            liability for injury resulting from an act or omission of  
            their employees in the scope of their employment.

          3)Authorizes two or more local public entities, by a joint  
            powers agreement, to provide insurance through self-insurance,  
            or from an admitted insurer, or from a nonadmitted insurer  
            when obtained through a surplus lines broker. 

          4)Specifies that the pooling of self-insured claims or losses  
            among local public entities is not considered insurance and is  
            not subject to regulation by the Insurance Commissioner.

          5)Authorizes two or more public agencies by agreement to jointly  
            exercise any power common to the contracting powers, even  
            though one or more of the contracting agencies are located  
            outside this state. 

           FISCAL EFFECT  :   Unknown

           COMMENTS  : 








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          Public housing authorities have the ability to join together in  
          multi-state joint self-insurance risk pools to manage property  
          and liability risks, jointly purchase insurance or reinsurance,  
          and to contract for risk management, claims, and administrative  
          services in order to conserve scarce resources.  These pools are  
          limited to participation by public entities.

          Affordable housing is increasingly being developed by tax credit  
          limited partnerships, limited liability companies, and nonprofit  
          corporations.  Public housing projects are being transferred to  
          these entities (a process called "de-federalization") because of  
          HUD's asset management restrictions and the decrease in HUD  
          capital funds and moneys for operating subsidies.  

          When a tax-credit limited partnership develops affordable  
          housing, either a housing authority or a nonprofit corporation  
          acts as the general partner, and institutional financing sources  
          become the limited partners.  Nonprofit corporations have become  
          more active in the development of affordable housing because  
          they have access to funding sources that may not be available to  
          public housing authorities.  

          AB 2327 creates new statutory requirements on affordable housing  
          entity insurance pools that would be similar to those now  
          required of public entity insurance pools (pursuant to Section  
          6500 et seq. of the Government Code) and for nonprofit  
          corporation insurance pools (pursuant to Section 5005.1 of the  
          Corporations Code).  The governing board of the pool would be  
          required to set premium levels necessary to ensure financial  
          stability.  The types of insurance coverage to be provided by  
          the affordable housing entity insurance pool is consistent with  
          the insurance coverage that can be provided by a public entity  
          or nonprofit corporation insurance pool.

          The bill is similar to legislation enacted in Oregon and  
          Washington in 2009.  The Oregon and Washington legislation  
          permits housing authorities, nonprofit corporations, and tax  
          credit limited partnerships and limited liability companies that  
          are affiliated with a housing authority or nonprofit corporation  
          to form a joint self-insurance pool that is not regulated as an  
          insurance company but does have the attributes of a public  
          entity.  

           Arguments in Support 








                                                                 AB 2327
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           The bill's sponsor, the Housing Authorities Risk Retention Pool  
          (HARRP), is a California joint powers authority that operates as  
          a self-insurance pool comprised of over 90 public housing  
          authorities from Oregon, Washington, California and Nevada.   
          HAARP is limited to insuring property where a housing authority  
          is the sole owner, a situation that is increasingly rare.  The  
          sponsor argues that California needs to update its statutes to  
          permit other types of entities that develop, acquire, or manage  
          affordable housing to establish cost-efficient, multi-state  
          insurance risk pools as a way to maintain the availability of  
          affordable housing in this state.

          According to the sponsor, California affordable housing entities  
          would benefit from the ability to become a member of a  
          multi-state self-insurance pool.  The ability to provide low  
          cost insurance, broadened coverage, and effective risk  
          management tailored to affordable housing risk exposures  
          translates into more abundant affordable housing for California  
          residents without any new government expenditures.

           Committee Amendments:
           
          1)On page 2, line 32, delete "include the organization of a  
            separate legal or administrative entity whose duty it is to  
            administer the insurance pool, which may be" and insert "be  
            organized as" in order to correct a drafting error.

          2)On page 3, line 26, replace the term "individuals of low  
            income" with "persons or families of low or moderate income."   
            The latter is the term that is defined in Health & Safety Code  
            Section 50093, the code section cross-referenced in the  
            definition of affordable housing in this bill.

           Double referred  :  The Assembly Committee on Rules referred AB  
          2327 to the Committee on Local Government and Housing and  
          Community Development.  The bill passed the Committee on Local  
          Government on April 7, 2010 by a vote of 11 to 0.
           
          REGISTERED SUPPORT / OPPOSITION  :   

           Support 
           
          Housing Authorities Risk Retention Pool (sponsor)
          California Coalition for Rural Housing 








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          Housing Authority of the County of Alameda
          Housing Authority of the County of Monterey

           Opposition 
           
          None on file
           
          Analysis Prepared by  :    Anya Lawler / H. & C.D. / (916)  
          319-2085