BILL ANALYSIS                                                                                                                                                                                                    Ó



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          SENATE THIRD READING


          SB  
          1451 (Mendoza)


          As Amended  August 4, 2016


          Majority vote


          SENATE VOTE:  34-1


           -------------------------------------------------------------------- 
          |Committee       |Votes|Ayes                   |Noes                 |
          |                |     |                       |                     |
          |                |     |                       |                     |
          |                |     |                       |                     |
          |----------------+-----+-----------------------+---------------------|
          |Insurance       |13-0 |Daly, Melendez, Travis |                     |
          |                |     |Allen, Bigelow,        |                     |
          |                |     |Calderon, Chu, Cooley, |                     |
          |                |     |Cooper, Dababneh,      |                     |
          |                |     |Dahle, Frazier, Gatto, |                     |
          |                |     |Rodriguez              |                     |
          |                |     |                       |                     |
          |----------------+-----+-----------------------+---------------------|
          |Appropriations  |18-0 |Gonzalez, Bigelow,     |                     |
          |                |     |Bloom, Bonta,          |                     |
          |                |     |Calderon, Chang, Daly, |                     |
          |                |     |Eggman, Gallagher,     |                     |
          |                |     |                       |                     |
          |                |     |                       |                     |
          |                |     |Roger Hernández,       |                     |
          |                |     |Holden, Jones,         |                     |
          |                |     |Obernolte, Quirk,      |                     |








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          |                |     |Santiago, Wagner,      |                     |
          |                |     |Weber, Wood            |                     |
          |                |     |                       |                     |
          |                |     |                       |                     |
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          SUMMARY:  Authorizes the Board of Directors of the State  
          Compensation Insurance Fund (SCIF) to convert civil service  
          positions into exempt positions.  Specifically, this bill:  


          1)Authorizes the board of directors (board) of SCIF to appoint  
            additional executive and management positions, as deemed  
            appropriate by the board.


          2)Provides that the board may establish up to eight of these  
            additional executive and management positions.


          3)Specifies that these positions shall be in the areas of  
            underwriting, technology, claims, finance, or actuarial.


          4)Provides that no more than two of these positions may be  
            licensed attorneys.


          5)Provides that the board may set the salary for these  
            additional executive and management positions, and that these  
            employees are not subject to the civil service or state  
            contracting rules that might otherwise apply.


          EXISTING LAW:   


          1)Establishes SCIF as a quasi-state entity, generally subject to  








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            the civil service laws applicable to state agencies.


          2)Provides that SCIF is a workers' compensation insurer that is  
            authorized to compete in the market with private insurers,  
            that also serves as the insurer of last resort for employers  
            that are unable to obtain workers' compensation insurance from  
            private insurers.


          3)Provides that SCIF is governed by an 11 member board of  
            directors, 9 of whom are gubernatorial appointees, and two of  
            whom are Legislative appointees.


          4)Authorizes the board to appoint the following 11 exempt  
            officers: 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.


          5)Provides that these 11 employees are exempt from the normal  
            civil service rules that govern SCIF employees, and authorizes  
            the board to set their salaries.


          FISCAL EFFECT:  Because SCIF is 100% funded by policyholder  
          premiums and investment earnings from those premiums, its costs  
          have no impact on either the General Fund or any Special Fund.   
          The Senate Appropriations Committee referred this bill to the  
          Senate Floor pursuant to Senate Rule 28.8.  


          COMMENTS:  


          1)Purpose.  According to the author, the SCIF board needs the  








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            flexibility to create additional exempt management positions,  
            allowing it the ability to avoid hiring costly and ultimately  
            temporary consultants, without having to come to the  
            Legislature to approve each new position.  Providing the SCIF  
            board the authority to fill these positions with appointed  
            employees will allow the organization to respond more quickly  
            to the market and accelerate progress through a multi-year  
            business transformation that more effectively supports  
            California's workers, economy, and businesses by creating more  
            stability in the marketplace.


          2)History of exempt SCIF employees.  Until 2009, SCIF had only  
            one exempt position-the president and CEO.  In 2008, AB 1874  
            (Coto), Chapter 322, authorized six additional specific exempt  
            positions:  a chief financial officer, chief operating  
            officer, general counsel, chief information technology  
            officer, chief investment officer, and chief risk officer.  In  
            2013, AB 1394 (Insurance Committee), Chapter 309, added a  
            chief medical officer, chief actuarial officer, chief claims  
            operations officer, and chief of internal affairs to the list  
            of specific exempt positions.  In the case of each of these  
            bills, SCIF made specific arguments to the Legislature why  
            these additional exempt positions were appropriate.  The  
            Legislature agreed with these proposals, and approved the  
            expansion of exempt employees.  On the other hand, in 2012, SB  
            1406 (Emmerson) proposed to expand the number of exempt  
            employees SCIF could employ by granting discretion to the  
            board.  After several iterations, SB 1406 was held in the  
            Senate Appropriations Committee.  Notably, the year after SB  
            1406 was held, SCIF returned to the Legislature with AB 1394  
            and a "specific authorization" proposal.


          3)Managerial flexibility.  SCIF is the largest workers'  
            compensation insurer in California, currently writing  
            approximately 12% of the insured market.  Historically, it has  
            been forced by market conditions to write substantially more  
            than 12% - at one point exceeding 50% of the market.  A  








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            private insurer of this magnitude would have a substantial  
            number of highly paid employees with high degrees of specific  
            expertise.  This bill is designed to enable more efficiency,  
            better operations, and ultimately better results for  
            California employers.




          Analysis Prepared by:                                             
          Mark Rakich / INS. / (916) 319-2086  FN: 0003589