Over the decades since the enactment of the Roseberry Act, we have witnessed an almost Kafkaesque metamorphosis of the State Compensation Insurance Fund. Today, this billion-dollar behemoth remains in a state of schizophrenia watching as all concerned about workers’ compensation in this state ponder its inscrutable position as a “quasi-public” entity, more commonly known as a “public enterprise fund.”
Its monies are not public, and over the years it has managed to use the Legislature to exempt itself from a host of requirements, including open meeting and public records laws, that apply to other state agencies. Unlike all other state agencies, there is no bidding requirement for equipment or other kinds of contracts, and no public scrutiny or transparency we can find. This creates a public agency with no mechanism to keep it honest.
The Labor Code still refers to it as a division of the Department of Industrial Relations, but that appears more to be an appendix than any form of statutory claim that SCIF has anything to do with state government. The exception to that, of course, is for its employees who still enjoy what is now an almost unthinkable benefit in the private sector of a defined benefit retirement plan, more commonly known as CalPERS. At retirement they receive medical insurance for the rest of their life as well as 90% of their annual employed earnings. It is the taxpayer who will bail out CalPERS when things get ugly later.
When originally conceived, State Fund was under the jurisdiction of the Industrial Accident Commission, an appointed body that oversaw the entire workers’ compensation system. At its creation, no less a luminary than Gov. Hiram Johnson declared, in 1913, that the Fund should not invade the sphere of private enterprise at more than a 12% share of the market so as to prevent the private sector from taking advantage of California businesses. That, of course, was in the days prior to the McCarran-Ferguson Act and the establishment of a workers’ compensation insurance rating bureau in California.
It also predated the emergence of the position of Insurance Commissioner as an independent elected official whose role, it appears, is to ensure profitability at levels deemed appropriate only by consumer advocates and to blame predecessors if anything untoward happens on their watch. Those who paraphrase Gov. Johnson’s comments regarding private insurers also fail to acknowledge his unqualified rejection of an exclusive state fund.
Over the decades, SCIF has been successful in taking management away from the Industrial Accident Commission and vesting it in a policyholder board of directors. As recent events have clearly demonstrated, the lack of public access to its deliberations combined with no meaningful oversight of SCIF’s operations has led to controversy, litigation, scandal and possibly criminal indictments. These were easily foreseeable consequences.
The State Fund is a sacred cow of enormous proportions. In 2006, former Senator Jackie Speier was successful in establishing SCIF’s accountability to the State Auditor, but only after a Flash Report from this publication alerted her and others to the last-minute gamesmanship that State Fund’s highly paid lobbyists were using to kill the bill. Did we say highly paid lobbyists?
But in the year that followed the signing of Senate Bill 1452, it would appear that one thing 120 members of the California Legislature can agree on is not asking the Auditor to take a peek at the goings-on at SCIF. This is indeed ironic, because the most recent appointment to the SCIF board by Gov. Schwarzenegger is secretary and treasurer for the Kern County regional chapter of the California Elected Women’s Association for Education and Research (CEWAER), an organization led by now-retired Senator Speier.
Though there are legislative vehicles for reforming the governance of SCIF, it would appear, at least at this point, that this effort has also fallen by the wayside. That could in part be due to organized labor insisting that it have more to do with governance of SCIF (or its contracts) than it currently has.
In a world where private corporations are struggling to comply with the requirements of Sarbannes-Oxley, it would not send a positive signal to make SCIF’s governance even less professional, if that is possible, than currently is the case.
At the California Department of Insurance, what is going on SCIF-wise appears likely to be a regulatory non-event. It is a bit incongruous to conjure up an image of the Department rushing in to investigate wrongdoings at SCIF when most people interested in this issue have been led to believe that the Department was already all over SCIF.
SCIF’s resistance to the Department is not futile. Au contraire. It has been proven to work again and again. Asking the same people to do the same thing will not create different results.
Indeed, the issue confronting the Department is not what is it going to find, but rather what has it failed to find in the years that it has been examining this entity?
By November of this year, we will hear that all is well with SCIF and that lapses in oversight and judgment have been corrected. Politicians will announce that the crisis is over, although truth be told, this never amounted to a crisis because nothing being alleged ever affected the Fund’s solvency. No major institutional changes will be made other than adding a few additional executives, such as a CFO, who somehow will make a difference in an entity whose investment flexibility is severely hampered by statute. The board will remain the board and SCIF will be running more efficiently going into 2008. Its public/private schizophrenia will remain untreated, allowing it to continue to exist in a limbo of its own deliberate creation.
After all, someone has to protect California businesses from insurance companies, right?