BILL ANALYSIS Ó
SENATE INSURANCE COMMITTEE
Senator Ronald Calderon, Chair
AB 1263 (Williams) Hearing Date: June 8, 2011
As Amended: April 7, 2011
Fiscal: No
Urgency: No
SUMMARY Would extend current post-employment lobbying
restrictions for SCIF Board Members and Exempt employees from 1
year to two years and require board approval of consulting
contracts with former board members of exempt employees.
DIGEST
Existing law
1.Establishes the State Compensation Insurance Fund 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 appointed 11-member Board
of Directors.
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
AB 1263 (Williams), Page 2
employment with SCIF.
This bill
1.Would revise the prohibition on State Compensation Insurance
Fund (SCIF) officers and directors from lobbying SCIF from 1
year post-termination to 2 years after leaving employment with
SCIF.
2.Would require that any agreements on SCIF's behalf which
provide for consulting services to be provided by a former
SCIF Board member or Officer must be approved by the SCIF
Board of Directors.
COMMENTS
Purpose of the bill According to the Author, AB 1263 one
year extension of the post-employment lobbying restriction
and its application to other officers will, along with the
board approval of consulting contracts will "ensure that
the SCIF Board and staff are not unduly influenced by
former members of the Board of Directors or former
employees as they make decisions on how best to invest the
fund's money".
The Author notes that AB 1263's contracting provisions
"will bring the letting of consulting contracts to former
board members and employees into the open". By requiring
approval of such contracts by the Board (as opposed to
being negotiated by just a few Board members and/or staff),
this will "prevent the appearance of impropriety or
deferential treatment to former employees or Board of
Directors Members by the current Board".
Finally, the author states:
"The SCIF acts as the workers' compensation insurer
for the state and is the workers' compensation insurer
of last resort. Most of the policyholders are small
to medium size businesses that cannot secure workers'
compensation insurance in the private market. The
SCIF provides protection for thousands of California
workers. The management of this fund should be above
question and it is important to these policyholders
and their workers that the integrity of the fund be
AB 1263 (Williams), Page 3
above reproach. These modest reforms limit the
influence of those who are no longer on the Board of
Directors or in the employment of the fund as well as
allow for a dialogue about the awarding of consulting
contracts to former staff and board-members."
1. Background and Discussion:
This bill appears to be a reasonable response to a recent
trend for increased scrutiny of SCIF related to management
of the fund. Extending the prohibition on lobbying the fund
by former board members and employees from one year to two
years and imposing sunshine provisions on consulting
contracting by former board members and/or officers will
help stem the loss of public confidence.
In 2008, the Legislature passed SB 1145 (Machado) to
increase SCIF's transparency and accountability in response
to recent concerns. At that time in 2008, the impetus for
those changes was described in an analysis of SB 1145 as:
"In the past two years, there has been an aura of
scandal surrounding SCIF. In the fall of 2006, two
board members voluntarily resigned after conflict of
interest concerns were raised -- the board members
were, according to a DOI audit (see below), owners or
had a financial interest in insurance brokers or
associations receiving substantial payments under
SCIF's Group Association Program. The SCIF Board of
Directors then hired an outside legal firm to conduct
an internal examination and audit, and in March of
2007, the Board fired several executives, including
the President and an Executive Vice President. That
examination uncovered serious abuses at the highest
levels and led to a joint criminal inquiry by the DOI,
the California Highway Patrol (the investigatory
agency responsible for investigating state agencies
when there are allegations of criminal misconduct) and
the San Francisco District Attorney's office that is
ongoing, and is expected to continue for several more
months.
At the same time, the DOI, as part of its regulatory
authority, launched a full operational and financial
audit of SCIF by an outside firm, RSM McGladry. That
AB 1263 (Williams), Page 4
audit was recently completed, and provides a scathing
review of an organization run amok, with poor business
practices, non-existent or ignored management control
systems, and sloppy accounting procedures, among other
issues, with the problems spreading throughout the
organization.
Against this backdrop of recent history, the postemployment
lobbying restrictions and consulting contract protocols
involving former Board Members and officers of SCIF appear
reasonable.
2. Summary of Arguments in Support:
a. The Author states AB 1263 will "prevent the
appearance of impropriety or deferential treatment to
former employees or Board of Directors Members by the
current Board".
b. According to SEIU Local 1000, AB 1263 will
strengthen the 2008 reforms enacted by Senator
Machado's SB1145. SEIU Local 1000 also states:
"anyone who solicits or does business with the
State Fund staff or the board should not expect
favors. The public perception that quid pro quo
may exist at State Fund must be changed. State
Fund must be willing to set a high standard of
ethical integrity to be a role model against the
culture of excess that pollutes the financial
industry."
3. Summary of Arguments in Opposition:
a. None received
4. Amendments:
a. None
5. Prior and Related Legislation:
AB 1263 (Williams), Page 5
SB 1145 (Machado) Chapter 344, Statutes of 2008,
restructured the governance of the State Compensation
Insurance Fund; allowed the board to appoint six additional
exempt positions in addition to the president, applied the
Bagley-Keene Open Meeting Act to meetings of the board; and
imposed a 1 year post-employment lobbying restrictions upon
members of the board and other executive level employees.
LIST OF REGISTERED SUPPORT/OPPOSITION
Support
SEIU Local 1000 (Sponsor)
State Compensation Insurance Fund
Opposition
None
Consultant: Ken Cooley (916) 651-4110