BILL ANALYSIS Ó SB 1451 Page 1 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, | | SB 1451 Page 2 | | |Santiago, Wagner, | | | | |Weber, Wood | | | | | | | | | | | | -------------------------------------------------------------------- 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 SB 1451 Page 3 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 SB 1451 Page 4 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 SB 1451 Page 5 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