In what can only be called a bold move designed to send a clear message to the Governor and the legislature, the Board of Directors for the State Compensation Insurance Fund announced it has adopted a resolution opposing any sale of its assets. Governor Schwarzenegger’s Chief of Staff Susan Kennedy (pictured recently in national media smoking a cigar), along with staffers Cynthia Bryant and David Crane have proposed same to the legislature as a budget deficit deflector. Kennedy’s plan isn’t going to work.

Such a sale has been in discussion in Sacramento for much of the spring as a partial way of solving the budget deficit. It first surfaced in the governor's May revise and has since gained support of legislative democrats.

As envisioned by the governor’s troika, the sale is supposed generate $1 Billion to help close the state budget deficit. The language proposed removed the Insurance Commissioner and Attorney General from the process, immunizes SCIF’s board for a decision in favor, and put the Department of Finance in charge.

But, the $1Billion it supposedly adds to the budget is not really real. First, the Department of Finance gets two years to come up with a plan and gets to spend millions of dollars on fancy consultants. At the end there may be no sale so the $1B comes back into the deficit.

Even the proposal of a sale could impact the predictability of the insurance market, and adversely affect SCIF policyholders insiders say. Further outcomes to cases challenging the right of states to sell state fund assets in other states have uniformly held that the assets belong to the policyholders and cannot be taken by the government.

Board chairwoman Jeanne Cain opened the meeting by making the announcement and providing the text of the resolution. She said the resolution was adopted during its closed session part of the meeting.

"Whereas the Board of Directors received a full and complete briefing regarding the Budget Trailer Bill (AB 188) and directors’ duties and obligations; and

Whereas the State Compensation Insurance Fund assets are dedicated to the purpose of providing a fairly and competitively and self-supporting workers compensation company for the benefit of policyholders, injured workers and employees; and

Whereas the Board of Directors considered existing proposed legislation to sell State Compensation Insurance Fund assets for purposes of balancing the California budget;

Now therefore, be it resolved that the State Compensation Insurance Fund Board of Directors is opposed to any proposed legislation regarding the sale or other disposition of State Compensation Insurance Fund assets and liabilities for the purpose of balancing the California budget, whether to the General Fund or any other fund."

The question remains as to whether Kennedy sees the writing on the wall, and stop trying to gin up a phony budget solution by withdrawing this proposal.  It is clear that the Board, even with new gubernatorial appointees, will not vote for the sale.

The Governor’s office was not contacted for this story.

Filed by Brad Cain in San Francisco and by Dale Debber in Sacramento.

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