BILL ANALYSIS
AB 2327
Page 1
Date of Hearing: April 7, 2010
ASSEMBLY COMMITTEE ON INSURANCE
Jose Solorio, Chair
AB 2327 (Harkey) - As Introduced: February 19, 2010
SUBJECT : Affordable housing: risk retention pool
SUMMARY : Authorizes affordable housing entities to join in an
arrangement that provides for the pooling of self-insured claims
or losses against tort liability, liability to officers and
employees for their acts or omissions, and physical damage to
motor vehicles, personal property and real property of the
affordable housing entity. Specifically, this bill :
1)Authorizes an "affordable housing entity" to join one or more
other affordable housing entities in an arrangement providing
for the pooling of self-insured claims or losses with respect
to any of the following:
a) insurance covering any tort liability;
b) insurance covering any employee of the affordable
housing entity against his or her liability for injury
resulting from an act or omission in the scope of
employment;
c) insurance covering any board member, officer, member or
volunteer of the affordable housing entity against any
liability from any act or omission in the scope of
participation with the affordable housing entity; and
d) insurance covering any loss from physical damage to
motor vehicles, personal property, real property, or other
property owned or operated by the affordable housing
entity.
2)Defines the term "affordable housing entity" to mean any of
the following:
a) a housing authority created under the laws of this state
or another jurisdiction and any instrumentality of a
housing authority;
b) a nonprofit corporation organized under the laws of this
state or another state that is engaged in providing
affordable housing;
c) a partnership or limited liability company that is
engaged in providing affordable housing and that is
affiliated with a housing authority or a nonprofit
corporation that has one or more of the following:
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i) a financial or ownership interest in the partnership
or limited liability company or the right to acquire that
interest;
ii) the power to direct the management or policies of
the partnership or limited liability company;
iii) a contract to lease, manage, or operate the
affordable housing owned by the partnership or limited
liability company;
iv) any other material relationship with the partnership
or limited liability company.
3)Defines "affordable housing" as housing developments in which
some of the dwelling units may be purchased or rented, with or
without government assistance, on a basis that is affordable
to individuals of low income as defined in state law. State
law defines "individuals of low income" as persons whose
income does not exceed 120 percent of area median income,
adjusted for family size in accord with factors adopted by the
US Department of Housing and Urban Development.
4)Specifies that the pooling arrangement established by this
bill will not be considered insurance, and will not be subject
to regulation by the Insurance Commissioner.
5)Authorizes any insurance pool established pursuant to this
bill to include the organization of a separate legal or
administrative entity whose duty is to administer the
insurance pool, which may be a nonprofit corporation, limited
liability company, partnership, trust, or other form of
entity, whether organized under the laws of this state or
another state operating in another state.
6)Requires that any insurance pool established pursuant to this
bill to have initial pooled resources of at least $250,000.
7)Requires all participating affordable housing entities in
these insurance pools to agree to pay premiums or make other
mandatory financial contributions, as determined by the
governing board, that are necessary to ensure a financially
sound risk pool.
8)Prohibits these insurance pools from insuring against workers'
compensation liability.
9)Specifies that nothing in this bill shall be construed to
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authorize an affordable housing entity to pay or insure for
any claim or judgment against an employee of the affordable
housing entity for punitive or exemplary damages.
EXISTING LAW :
1)Authorizes local agencies to enter into a joint pooling
agreement to form a single statewide insurance pooling
arrangement for the payment of tort liability or public
liability losses incurred by those agencies. The agency is
known as the Local Agency Self-Insurance Authority.
2)Authorizes local public agencies to self-insure against
liability for injury resulting from an act or omission of
their employees in the scope of their employment.
3)Authorizes two or more local public entities, by a joint
powers agreement, to provide insurance through self-insurance,
or from an admitted insurer, or from a nonadmitted insurer
when obtained through a surplus lines broker.
4)Specifies that the pooling of self-insured claims or losses
among local public entities is not considered insurance and is
not subject to regulation by the Insurance Commissioner.
5)Authorizes two or more public agencies by agreement to jointly
exercise any power common to the contracting powers, even
though one or more of the contracting agencies are located
outside this state.
FISCAL EFFECT : Undetermined.
COMMENTS :
1)Purpose . The purpose of this bill is permit a wider variety
of affordable housing entities to join together in multi-state
joint self-insurance risk pools to help ensure that affordable
housing remains available to low income Californians.
2)Background . According to the bill's sponsor, the Housing
Authorities Risk Retention Pool (HARRP), public housing
authorities have the ability to join together in mult-state
joint self-insurance risk pools to manage property and
liability risks, jointly purchase insurance or reinsurance,
and to contract for risk management, claims, and
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administrative services in order to conserve scarce resources
in these tough economic times. HARRP is a California joint
powers authority which operates as a self-insurance pool
comprised of 89 public housing authorities from Oregon,
Washington, California and Nevada.
The author and sponsor point out that significant changes are
occurring on a national basis with affordable housing.
Affordable housing is increasingly being developed by tax
credit limited partnerships, limited liability companies, and
nonprofit corporations. Public housing projects are being
transferred to these entities (a process called
"de-federalization") because of HUD's asset management
restrictions and the decrease in HUD capital funds and moneys
for operating subsidies.
The author and sponsor explain that when a tax-credit limited
partnership develops affordable housing, either a housing
authority or a nonprofit corporation acts as the general
partner, and institutional financing sources become the
limited partners. Nonprofit corporations have become more
active in the development of affordable housing because they
have access to funding sources that may not be available to
public housing authorities.
3)Arguments in Support . According to the author and the
sponsor, despite the developments in the housing marketplace
noted above, current law does not allow nonprofit
corporations, tax credit partnerships, and tax credit limited
liability companies to benefit from participating in housing
authority risk pools because they are not public entities. As
a result, action is needed in California to update current
statutes to permit these other entities that develop, acquire,
or manage affordable housing to establish cost-efficient,
multi-state insurance risk pools as a way to maintain the
availability of affordable housing in this state.
The author and sponsor state that this bill is consistent with
legislation enacted in Oregon and Washington in 2009. The
Oregon and Washington legislation permits housing authorities,
nonprofit corporations, and tax credit limited partnerships
and limited liability companies that are affiliated with a
housing authority or nonprofit corporation to form a joint
self-insurance pool that is not regulated as an insurance
company but does have the attributes of a public entity
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insurance pool.
This bill creates new statutory requirements on affordable
housing entity insurance pools that would be similar to those
now required of public entity insurance pools (pursuant to
Section 6500 et seq. of the Government Code) and for nonprofit
corporation insurance pools (pursuant to Section 5005.1 of the
Corporations Code). The governing board of the pool would be
required to set premium levels necessary to ensure financial
stability. The types of insurance coverage to be provided by
the affordable housing entity insurance pool is consistent
with the insurance coverage that can be provided by a public
entity or nonprofit corporation insurance pool.
California affordable housing entities would benefit from the
ability to become a member of a multi-state self-insurance
pool. The ability to provide low cost insurance, broadened
coverage, and effective risk management tailored to affordable
housing risk exposures translates into more abundant
affordable housing for California residents without any new
government expenditures.
4)Clarifying Amendments Suggested:
a) What entities can become affordable housing entities?
The bill proposes that an "affordable housing entity" can
be a housing authority, a nonprofit corporation engaged in
providing affordable housing, and a partnership or limited
liability company engaged in providing affordable housing
that is affiliated with a housing authority or a nonprofit
corporation that meets certain conditions. One of these
conditions is that the housing authority or nonprofit
corporation has "any other material relationship" with the
partnership or limited liability company. (See page 4,
lines 1-2 of bill.) Could this mean that a material
relationship exists because one board member from the
nonprofit organization or the housing authority has
personally invested in the partnership? Since the meaning
of this phrase is unclear, it is recommended that it be
stricken from the bill.
b) What constitutes affordable housing? The bill defines
"affordable housing" as housing developments in which some
of the dwelling units may be purchased or rented, with or
without government assistance, on a basis that is
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affordable to individuals of low income as defined in state
law. (See page 3, lines 12-16 of bill.) This appears to
allow very few units to be affordable housing in a housing
development and still qualify for the pool's benefits. If
this bill is approved by this Committee, this issue appears
to be one for the Housing and Community Development
Committee to consider.
c) Would there be a limit to the type of separate
administrative entities that could be established? This
bill would authorize any insurance pool established
pursuant to this bill to include the organization of a
separate legal or administrative entity whose duty is to
administer the insurance pool, which may be a nonprofit
corporation, limited liability company, partnership, trust,
or other form of entity , whether organized under the laws
of this state or another state operating in another state.
Would this allow the formation of a company organized for
profit to administer this pool? Given the uncertainty of
the meaning of "or other form of entity," it is recommended
that this clause be stricken from the bill.
d) General resources verses cash resources. This bill
requires that any insurance pool established pursuant to
this bill to have initial pooled resources of at least
$250,000. Should the bill be amended to specify that
$250,000 shall be in cash or cash equivalent resources?
That is indicated by the background document submitted by
the Author to the Committee. Otherwise, one could argue
that any kind of resources with the value noted above would
suffice; including non-liquid resources.
e) Notice of financial risk. This bill requires all
participating affordable housing entities in these
insurance pools to agree to pay premiums or make other
mandatory financial contributions, as determined by the
governing board, that are necessary to ensure a financially
sound risk pool. What safeguard beyond the governing board
exists to ensure the financial soundness of these risk
pools? Is there a least a disclosure of the risk of no
other safeguards? Currently, a disclosure notice of
financial risk is required in connection with foreign risk
retention groups (see Section 132, paragraph (g), of the
Insurance Code). It is suggested that a disclosure notice
be provided to pool participants that the pool is not
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regulated by the Insurance Commissioner and that state
insurance insolvency guaranty funds are not available to
safeguard its risk.
f) Joint and Severable Liability . Members of this pooling
arrangement should be jointly and severably liable, which
means that each member could be held liable for the
liability incurred by any member. While the bill suggests
that all members are subject to assessment by the board of
the pool, it does not expressly state that members are
jointly and severably liable, as is the case with workers
compensation self-insured groups. The bill should be
amended to clarify this issue. A disclosure notice to the
pool participants on this point is suggested to be added to
this bill.
REGISTERED SUPPORT / OPPOSITION :
Support
Housing Authorities Risk Retention Pool (HARRP)
Opposition
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Analysis Prepared by : Manny Hernandez / INS. / (916) 319-2086