BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 1451| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: SB 1451 Author: Mendoza (D), et al. Amended: 5/3/16 Vote: 21 SENATE INSURANCE COMMITTEE: 6-1, 4/13/16 AYES: Roth, Gaines, Hall, Liu, Mitchell, Wieckowski NOES: Glazer NO VOTE RECORDED: Berryhill, Hernandez SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8 SUBJECT: State Compensation Insurance Fund: executive and management appointments SOURCE: State Compensation Insurance Fund DIGEST: This bill allows the State Compensation Insurance Fund (State Fund) board of directors (board) to appoint additional executive and management positions, not to exceed 1 percent of the number of the Fund's civil service employees; and sunsets that authority on December 31, 2021. Senate Floor Amendments of 5/3/16 are technical and add co-authors. ANALYSIS: Existing law: 1)Establishes State Fund, a quasi-state agency, for the purpose of transacting workers' compensation insurance, to be SB 1451 Page 2 administered by a board with full power, authority and jurisdiction to conduct the business of the fund; 2)Directs State Fund to be fairly competitive with other insurers, and states the intent of the Legislature that it be neither more nor less than self-supporting; 3)Requires the board to appoint a president, chief financial officer, chief operating officer, chief information technology officer, chief investment officer, chief risk officer, general counsel, chief medical officer, chief actuarial officer, chief claims operations officer and chief of internal affairs; and specifies that these positions are not subject to otherwise applicable provisions of the Government Code and the Public Contract Code (exempt non-civil service positions); 4)Specifies that the Milton Marks Postgovernment Employment Restrictions Act applies to the State Fund and its board and appointed employees; 5)Specifies that the board and appointed officers are prohibited from lobbying State Fund for two years after leaving employment with State Fund. This bill allows the State Fund board of directors to appoint additional executive and management positions, not to exceed 1 percent of the number of the Fund's civil service employees; and sunsets that authority on December 31, 2021. Comments State Fund was created by statute in 1914 to act as a workers' compensation insurer for the state and to serve as the workers' compensation insurer of last resort in the private market. It also serves as a Third Party Administrator (TPA) for self-insured public and private employers. The State of California is its largest TPA client. Although created by the Legislature, it is operated as a private non-profit enterprise, and is supposed to be "neither more nor less than self-supporting." The State of California is not liable for any obligations of State Fund. It is regulated by the California Department of Insurance as a private insurer, but has only such authorities as are granted by statute. SB 1451 Page 3 State Fund's market share has fluctuated from a record high of 53% in 2000-2001 to a low of 10% in 2012, depending on the condition of the market. At the same time, State Fund's workforce is part of the civil service, entitled to the same job protections as other state workers. Until 2009, it had only one exempt position-the president and CEO. An audit in 2007 uncovered serious operational and managerial improprieties, and criticized State Fund's poor business and accounting practices and lack of a functional management team. In response, AB 1874 (Coto, Chapter 322 Statutes of 2008) granted State Fund six additional exempt positions, including a chief financial officer, chief operating officer, general counsel, chief information technology officer, chief investment officer, and chief risk officer. SB 1145 (Machado, Chapter 344 Statutes of 2008) made State Fund subject to the Bagley-Keene open meeting law. In 2013, AB 1394 (Committee on Insurance, Chapter 309 Statutes of 2013) added a chief medical officer, chief actuarial officer, chief claims operations officer, and chief of internal affairs to the list of exempt positions. State Fund currently has approximately 4,400 employees, allowing it to appoint up to 44 new positions under this bill. According to State Fund President Vernon Steiner, positions they propose to fill with this new authority include a chief counsel, chief underwriting officer, chief information security officer, chief technology officer, chief administrative officer, senior vice president for premium audit, and senior vice president for safety and loss prevention. Many of these positions have been filled with outside consultants. As a result of this new authority to fill these positions with employees, State Fund expects to have a net savings of at least $1.7 million. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: No SUPPORT: (Verified5/4/16) State Compensation Insurance Fund (source) OPPOSITION: (Verified5/4/16) SB 1451 Page 4 None received ARGUMENTS IN SUPPORT: State Fund has sponsored SB 1451 because it will expand its ability to attract and retain staff with industry experience and specific expertise to continue its business transformation and respond effectively to market demands and changes. State Fund needs the ability to compete with the private market for such talent to bolster capabilities throughout the organization. This legislation will allow it to pursue management changes without having to seek legislative approval for each individual position. Prepared by:Erin Ryan / INS. / (916) 651-4110 5/4/16 14:58:06 **** END ****