BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | AB 2327| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ CONSENT Bill No: AB 2327 Author: Harkey (R), et al Amended: 6/21/10 in Senate Vote: 21 SENATE BANKING, FINANCE, AND INS. COMMITTEE : 10-0, 6/30/10 AYES: Calderon, Cogdill, Correa, Florez, Kehoe, Liu, Lowenthal, Padilla, Price, Runner NO VOTE RECORDED: Cox SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8 ASSEMBLY FLOOR : 63-0, 5/28/10 (Consent) - See last page for vote SUBJECT : Affordable housing: risk retention pool SOURCE : Housing Authorities Risk Retention Pool DIGEST : This bill authorizes an affordable housing entity to join with one or more affordable housing entities in an arrangement providing for the pooling of self-insured claims or losses, as specified. ANALYSIS : Existing law : 1. Authorizes local agencies to enter into a joint pooling agreement to form a single statewide insurance pooling CONTINUED AB 2327 Page 2 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. This bill: 1. Authorizes an affordable housing entity to join with 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 all or any part of any tort liability. B. Insurance covering any employee of the affordable housing entity against all or any part of his or her liability for injury resulting from an act or omission in the scope of employment. B. Insurance covering any board member, officer, partner, manager, member, or volunteer of the affordable housing entity against any liability that may arise from any act or omission in the scope of participation with the affordable housing CONTINUED AB 2327 Page 3 entity. C Insurance covering any loss arising from physical damage to motor vehicles, personal property, real property, or other property owned or operated by the affordable housing entity. 2. Specifies the pooling arrangement established by this bill arel not be considered insurance. 3. Requires all affordable housing entities participating in a pooling arrangement 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. 4. Provides any insurance pool may be organized as a nonprofit corporation, limited liability company, partnership, or trust, whether organized under the laws of this state or another state or operating in another state. 5. Requires any insurance pool have initial pooled resources of not less than $2,500,000 in the form of cash or cash equivalents. 6. Requires any insurance pool maintain adequate reinsurance to protect against its risks. 7. Requires any insurance pool furnish a copy of the pool's annual audited financial statement and most recent actuarial review, by first class mail or by any other method of delivery, including electronic transmission, to the Assembly Committee on Housing and Community Development, the Assembly Committee on Insurance, the Senate Committee on Banking, Finance, and Insurance, and the Senate Committee on Transportation and Housing within 180 days of the close of the pool's fiscal year. If, in the period of time since the last submittal any of the following has occurred, the transmittal letter accompanying the annual audited financial statement and most recent actuarial review shall so indicate and shall provide a brief description of each matter: CONTINUED AB 2327 Page 4 A. There has been a change to the pool's plan of financing, management, or operation, including any material amendment to any of those plans. B. A claims audit report has been filed with any regulatory body with respect to the pool. C. A report of examination issued by any regulatory body with respect to the pool has been received. D. There has been a material change in the scope of the regulation of the pool by other states in which the pool operates. 8. Requires all participating affordable housing entities in any insurance pool to agree to pay premiums or make other mandatory financial contributions, as determined by the governing board, provided for by the insurance pool arrangement, that are necessary to ensure a financially sound risk pool. 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. 11.Defines "affordable housing entity as specified" Comments 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, CONTINUED AB 2327 Page 5 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 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. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No SUPPORT : (Verified 8/4/10) Housing Authorities Risk Retention Pool (source) California Coalition for Rural Housing Housing Authority of the County of Alameda Housing Authority of the County of Monterey ARGUMENTS IN SUPPORT : 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 HARRP 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 will 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 CONTINUED AB 2327 Page 6 risk exposures translates into more abundant affordable housing for California residents without any new government expenditures. ASSEMBLY FLOOR : AYES: Adams, Ammiano, Anderson, Arambula, Beall, Block, Blumenfield, Bradford, Brownley, Buchanan, Caballero, Charles Calderon, Conway, Cook, Coto, Davis, DeVore, Eng, Evans, Feuer, Fletcher, Fong, Fuentes, Fuller, Gaines, Galgiani, Garrick, Gilmore, Hagman, Harkey, Hayashi, Hernandez, Hill, Huber, Huffman, Jones, Knight, Lieu, Logue, Bonnie Lowenthal, Ma, Mendoza, Miller, Monning, Nava, Nestande, Niello, Nielsen, Norby, V. Manuel Perez, Portantino, Ruskin, Saldana, Skinner, Solorio, Swanson, Torlakson, Torres, Torrico, Tran, Villines, Yamada, John A. Perez NO VOTE RECORDED: Bass, Bill Berryhill, Tom Berryhill, Blakeslee, Carter, Chesbro, De La Torre, De Leon, Emmerson, Furutani, Hall, Jeffries, Salas, Silva, Smyth, Audra Strickland, Vacancy JJA:do 8/4/10 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED