BILL ANALYSIS Ó AB 1263 Page 1 Date of Hearing: April 13, 2011 ASSEMBLY COMMITTEE ON INSURANCE Jose Solorio, Chair AB 1263 (Williams) - As Amended: April 7, 2011 SUBJECT : State Compensation Insurance Fund: Conflicts of interest SUMMARY : Restricts State Compensation Insurance Fund (SCIF) officers and directors post-separation lobbying and contracting activities. Specifically, this bill : 1)Provides that members of the board of directors of SCIF, and officers appointed by the board, including the president, chief financial officer, chief investment officer, chief operating officer, chief risk officer, chief information technology officer, and general counsel, are prohibited from lobbying SCIF for a period of two years after terminating employment with SCIF. 2)Provides that any consulting contracts with former board members or former officers appointed by the board, including the president, chief financial officer, chief investment officer, chief operating officer, chief risk officer, chief information technology officer, and general counsel, must be approved by the board. EXISTING LAW : 1)Establishes SCIF as a quasi-governmental agency to operate in the workers' compensation insurance market in competition with private insurers, and as the carrier of last resort for employers that cannot obtain coverage from the private insurance market. 2)Provides that SCIF is governed by an 11-member board of directors, nine of whom are appointed by the Governor, one by the Speaker of the Assembly, and one by the Senate Rules Committee. 3)Authorizes the SCIF board to appoint seven exempt officers, including the president, chief financial officer, chief operating officer, , a chief information technology officer, chief investment officer, chief risk officer, and general AB 1263 Page 2 counsel. 4)Provides that, aside from the seven employees appointed by the board, SCIF employees are subject to the civil service laws otherwise applicable to state employees. 5)Provides that SCIF is funded entirely from premiums received, and earnings on these premiums and its reserves, and shall not be funded with any public funds. 6)Provides that members of the board of directors of SCIF, and the seven officers appointed by the board, are prohibited from lobbying SCIF for a period of one year after terminating employment with SCIF. FISCAL EFFECT : No fiscal impact expected. COMMENTS : 1)Purpose . According to the author, over the past few years, SCIF management has come under increased scrutiny, and increasing the restrictions on insider activities will help stem the loss of public confidence. 2)Background . In the mid-to-late 2000's, SCIF experienced what can only be described as a scandal involving board members and its senior officers. Among many other management issues that resulted in over 100 recommendations by a special auditor retained by the Department of Insurance to evaluate SCIF, concerns were expressed that certain officers and board members were obtaining personal benefit through so-called "safety groups" that had contractual relationships with SCIF. Board members and officers were relieved of their duties, and criminal investigations were initiated. However, after several years of reviewing the evidence, it was announced earlier this year that those investigations were being terminated without any charges being filed. In the meantime, the Legislature, after reviewing the auditor's recommendations, passed two pieces of legislation designed to AB 1263 Page 3 put SCIF on a sound footing to move forward. SB 1145 (Machado), Statutes 2008, Chapter 344, and AB 1874 (Coto), Statutes 2008, Chapter 322, adopted numerous changes to the laws that establish how SCIF is governed. The key features involved expanding and professionalizing the board, authorizing additional exempt employees to obtain necessary expertise to run a company the size of SCIF, applying the Bagley-Keene Open Meetings law to SCIF board meetings, and applying the Milton Marks Post-Government Employment Restrictions law to officers and board members. 3)Support . SEIU 100, the labor organization that represents most SCIF employees, argues that anyone who solicits or does business with the State Fund staff or with the board should not expect favors. In light of the scandals of the recent past, SEIU believes that the public perception that quid pro quo may exist at SCIF must be changed. It argues that SCIF must be willing to set the highest standards of ethics and integrity, particularly in light of the recent national financial industry scandals. REGISTERED SUPPORT / OPPOSITION : Support SEIU, Local 1000 State Compensation Insurance Fund Opposition None received. Analysis Prepared by : Mark Rakich / INS. / (916) 319-2086