BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 1263
                                                                  Page  1


          ASSEMBLY THIRD READING
          AB 1263 (Williams)
          As Amended  April 7, 2011
          Majority vote 

           INSURANCE           12-0                                        
           
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          |Ayes:|Solorio, Hagman, Charles  |     |                          |
          |     |Calderon, Carter, Feuer,  |     |                          |
          |     |Grove, Hayashi, Miller,   |     |                          |
          |     |Olsen, Skinner, Torres,   |     |                          |
          |     |Wieckowski                |     |                          |
          |     |                          |     |                          |
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           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 








                                                                  AB 1263
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            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 
            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  : 

           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.

           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.









                                                                  AB 1263
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          In the meantime, the Legislature, after reviewing the auditor's 
          recommendations, passed two pieces of legislation designed to 
          put SCIF on a sound footing to move forward.  SB 1145 (Machado), 
          Chapter 344, Statutes of 2008 and AB 1874 (Coto), Chapter 322, 
          Statutes of 2008 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.

           Support  .  Service Employees International Union (SEIU) 1000, the 
          labor organization that represents most SCIF employees, argues 
          that anyone who solicits or does business with the SCIF 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.


           Analysis Prepared by :    Mark Rakich / INS. / (916) 319-2086



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