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 








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            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 








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            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