BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
1242 (Calderon)
Hearing Date: 4/26/2010 Amended: As Introduced
Consultant: Katie Johnson Policy Vote: BFI 10-0
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BILL SUMMARY: SB 1242 would extend the authority for bonds to
be issued at the request of the California Insurance Guarantee
Association (CIGA) to cover outstanding workers' compensation
claims for insolvent insurers two years beyond the current
sunset date to January 1, 2013.
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Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
Increased premiums $0 to an unknown, potentially*General
due to increased assessment significant amount Special
on insurance policies passed Local
onto policyholders
Potential cost avoidance if,* General
without bill, CIGA sells all
Special
remaining bonds Local
*See staff comments
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STAFF COMMENTS:
When CIGA was given $1.5 billion in bond authority to act as a
safety net for workers' compensation claims left outstanding by
insolvent insurers by AB 227 (Vargas), Chapter 635, Statutes of
2003, CIGA was also granted the authority to administratively
levy an assessment on its members in order to repay the bond.
The members, in turn, pass on the cost of the assessment to
policyholders, which include state and local public agencies.
The current assessment is 1 percent of workers' compensation
premiums and will be closer to 2 percent in the near future, due
to the economic downturn, which decreased the amount of premiums
collected from policyholders. The current bond and assessment
authority expire January 1, 2011. This bill would extend that
sunset date two years-until January 1, 2013.
If CIGA determines it is necessary to sell more bonds during the
two-year extension, then it would increase the assessment on its
members accordingly and policyholders, including the state and
local public entities, would see an increase in their workers'
compensation insurance premiums. This would equate to an
increase in General Fund, special fund, and local fund
expenditures at an unknown amount that could be either
insignificant or significant.
However, if CIGA determines that it does not need to sell bonds,
policyholders would see no increase in premiums due to repayment
of the bonds and there would be no fiscal effect on the state.
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SB 1242 (Calderon)
Additionally, if this bill does not pass and the bond and
assessment authority is not extended, it is likely that CIGA
would sell its remaining bonds before January 1,
2011-approximately $810 million-just in case CIGA found a need
for those funds in the future, instead of selling them on an as
needed basis over several years. Policyholders, including the
state and local public entities, would subsequently see their
premiums increase significantly, likely before the end of FY
2010-2011.
Thus, with the passage of this bill and the extension of the
bond authority, there could be zero to some fiscal effect on the
state that would likely be less, certainly in FY 2010-2011, and
potentially ongoing, than if the bond authority was not
extended.