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 AB 2327 Page 2 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 AB 2327 Page 3 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 : AB 2327 Page 4 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 Page 5 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 AB 2327 Page 6 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