BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 1451| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- VETO Bill No: SB 1451 Author: Mendoza (D), et al. Amended: 8/4/16 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 SENATE FLOOR: 34-1, 5/9/16 AYES: Allen, Anderson, Berryhill, Block, Cannella, De León, Fuller, Galgiani, Hall, Hancock, Hernandez, Hertzberg, Hill, Hueso, Huff, Jackson, Lara, Leno, Leyva, Liu, McGuire, Mendoza, Mitchell, Monning, Moorlach, Morrell, Nguyen, Pan, Pavley, Roth, Stone, Vidak, Wieckowski, Wolk NOES: Glazer NO VOTE RECORDED: Bates, Beall, Gaines, Nielsen, Runner SENATE FLOOR: 38-1, 8/24/16 AYES: Allen, Anderson, Bates, Beall, Berryhill, Block, Cannella, De León, Fuller, Gaines, Galgiani, Hall, Hancock, Hernandez, Hertzberg, Hill, Hueso, Huff, Jackson, Lara, Leno, Leyva, Liu, McGuire, Mendoza, Mitchell, Monning, Moorlach, Morrell, Nguyen, Nielsen, Pan, Pavley, Roth, Stone, Vidak, Wieckowski, Wolk NOES: Glazer ASSEMBLY FLOOR: 79-0, 8/18/16 - See last page for vote SUBJECT: State Compensation Insurance Fund: executive and management appointments SB 1451 Page 2 SOURCE: State Compensation Insurance Fund DIGEST: This bill allows the State Compensation Insurance Fund (State Fund) board of directors (board) to appoint 8 additional exempt senior management employees in the areas of underwriting, technology, claims, finance, and actuary, and no more than 2 of those positions may be filled with licensed attorneys. ANALYSIS: Existing law: 1)Establishes State Fund, a quasi-state agency, for the purpose of transacting workers' compensation insurance, to be 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 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 to appoint 8 additional SB 1451 Page 3 exempt senior management employees in the areas of underwriting, technology, claims, finance, and actuary, and specifies that no more than 2 of those positions may be filled with licensed attorneys. Background 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. Most of State Fund's employees are civil servants. State Fund's board currently has statutory authority to appoint 11 exempt officers: president and CEO, chief financial officer, chief operating officer, general counsel, chief information technology officer, chief investment officer, chief risk officer, chief medical officer, chief actuarial officer, chief claims operations officer, and chief of internal affairs. State Fund had cited its need to have more flexibility with its workforce and salaries to help it operate more efficiently and effectively in the workers' compensation marketplace. It is the largest workers' compensation insurer in California, currently writing approximately 12% of the market. Its share has fluctuated significantly, and at one point as a result of severe market disruptions, its share exceeded 50% of the market. A private insurer of this magnitude would have a number of highly paid employees with high degrees of specific expertise. This bill is designed to facilitate greater efficiencies, better operations, and ultimately better results for California employers. According to State Fund, many of these positions have been filled with outside consultants and, as a result of new SB 1451 Page 4 authority to fill these positions with exempt employees, State Fund expects to have a net savings. FISCAL EFFECT: Appropriation: No Fiscal Com.:YesLocal: No According to the Assembly Appropriations Committee, because State Fund 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. SUPPORT: (Verified8/18/16) State Compensation Insurance Fund (source) OPPOSITION: (Verified8/18/16) None received GOVERNOR'S VETO MESSAGE: I am returning Senate Bill 1451 without my signature. This bill grants the State Compensation Insurance Fund Board authority to appoint and set the salary for up to eight additional senior management positions. Under limited circumstances it has been necessary for state agencies to have salary setting authority for certain positions. I'm not convinced this authority is justified in this instance. SB 1451 Page 5 ASSEMBLY FLOOR: 79-0, 8/18/16 AYES: Achadjian, Alejo, Travis Allen, Arambula, Atkins, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Rendon NO VOTE RECORDED: Roger Hernández Prepared by:Erin Ryan / INS. / (916) 651-4110 10/25/16 14:29:23 **** END ****