“Work in progress” is a term used for a bill that doesn’t quite have all the bugs worked out of it in time for legislative committee hearing deadlines. This is different from a “gut and amend,” in which language is worked out in private and stuffed into a bill strategically positioned for use near the end of the session when deals are cut. And yes, a few bills periodically are worked out in the public process and pretty much are known commodities by the time they reach the California Governor’s Office. Senate Bill 1145 (Machado), one of two legislative vehicles for changes to the management and operations of the State Compensation Insurance Fund, is not one of those bills. In fact, as of this writing the details have yet to be worked out after three policy committee hearings—and unanimous votes for the bill in each.
The sticking point—application of the state’s public record and open-meeting laws to the operations of State Fund—underscores the schizophrenic nature of State Fund. Even though a review of its peers in the western United States shows that state funds can operate within their mission and still have open meetings and minutes that reflect the conduct of those meetings, the exercise to date in Sacramento has largely been focused on how State Fund could be disadvantaged were it to be a little too open, a little too transparent, and operating a whole lot like a private insurer. Acknowledging State Fund’s proprietary concerns, then the solution is simple, elegant and with precedent.
The California Earthquake Authority (CEA) is the primary insurer of residential earthquake loss in California. It is a highly successful public fund serving a clear public purpose, and does indeed compete with private carriers that decided to remain in that market. Rather than go through a tortuous exercise carving exceptions into the public records and open-meetings laws, lawmakers simply said that everything that isn’t proprietary in ratemaking is public. They also clearly said that the open-meeting law applied to its operations – an open-meeting law already sufficiently qualified that its application would not impede State Fund deliberations, an open—meeting law that truly desires change and transparency.
Something will get to the Governor’s Office on these issues because tied to them is the exempt executive positions that State Fund claims it needs to upgrade its operations. Justification for that has been an article of faith for friends and foes of this murky mutual since the legislative debate began last year. It is also sufficiently accepted so that it is an urgency measure, effective upon the governor’s signature, following the requisite two-thirds vote by the Assembly and Senate. While one can legitimately question why these positions are necessary given the long history of faithful exercise of its duty by State Fund— and the most recent aberrational behavior by a few individuals—it is also clear that these positions are necessary for State Fund management to be in line with expectations of its internal auditor applying Sarbanes-Oxley standards to its governance.
Yes, there is another option, but in the insular realm that has become the decision making on this legislation, there is little opportunity to rethink policy. For the time being, State Fund remains housed exactly where it ought to be—in the Department of Industrial Relations. Imprudent thoughts of selling off State Fund or otherwise changing the way that California assures a guaranteed market for this coverage are rightly consigned to the scrap heap for this year. There are enough unintended consequences in the current legislative agenda without guaranteeing more.
But there are still steps that could be taken to steer this self-proclaimed path toward transparency in a better direction for all concerned. First, as is the case with CEA, make explicit what the law should already require—that State Fund officers, directors, management and employees fall squarely under the Political Reform Act. This would not only address the issue of disclosure of financial interests but also would compel State Fund to have a conflict-of-interest code and make these requirements fairly accessible to the public.
The second, and critical, step is to require State Fund to adhere to the requirements of Senate Bill 1452 (Speier) relating to internal audits of state agencies. Though the focus of that legislation as it relates to State Fund was to compel its cooperation with the State Auditor, existing exemptions to the Government Code also meant it did not have to have its internal auditors adhere to the same requirements as internal auditors for other state agencies. That should be corrected. These steps, in conjunction with clear and unambiguous application of public records and open-meeting laws, are about the best that can be hoped for in the current situation.
The Legislature is ill-equipped to micro-manage State Fund. So too is the State Fund Board of Directors. The current path toward confidentiality suggests a level of intervention by the State Fund Board Chair Jeannie Cain, who is also executive vice president of the California Chamber of Commerce, in what should be management responsibilities inconsistent with proper allocation of duties required of enterprise risk management. There is still time to address the real need for transparency at State Fund while protecting its need to be fairly competitive in the workers’ comp insurance marketplace. Not much time, but enough that if there is really interest in moving beyond the status quo, then necessary changes could still be made.