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  ****