Recent events swirling around State Compensation Insurance Fund (SCIF) could certainly make your head spin. Over the past several years, the Governor’s Office has made a substantial political investment in SCIF, overhauling its management and supporting legislative efforts to improve governance and add transparency. From an operational standpoint, this would seem to have been successful even during the difficult times created by a soft insurance market.
Then this budget thing happened.
First, in taking yet another action indicating that Arnold Schwarzenegger is indeed morphing into Gray Davis, there is the issue of the furlough. The first time this happened was during the term of Governor Davis, whose insistence on placing SCIF employees under the same furlough as state employees was resolved by the Legislature in Assembly Bill 227 (Vargas), which amended the Insurance Code to say that positions funded by SCIF “are exempt from any hiring freezes and staff cutbacks otherwise required by law.”
The Legislature—and Governor Davis—went on to say that this was declaratory of existing law. Seems as though a governor who wanted to furlough SCIF employees as part of a general furlough to save the drain on state resources—a drain that does not even exist in the case of the off-budget SCIF—might have a high hurdle to clear, given what the Legislature did.
A San Francisco Superior Court Judge, the Hon. Peter Busch, agreed and issued an injunction prohibiting the furlough. That lawsuit was filed by the bargaining unit for SCIF lawyers. Another suit was filed by the Service Employees International Union (SEIU) to secure the same relief for its members. That case is pending. Wouldn’t it be nice if workers’ comp judges actually applied the law to the facts? But I digress. The governor asks for a stay of the order pending his appeal and loses there, too. No furlough at SCIF, which should never have happened in the first place.
As if that weren’t enough, SCIF becomes “an asset of value” to the State of California to the tune of $1 billion earlier this year. The language excludes the insurance commissioner and attorney general, assigning the task to the Department of Finance, which has little or no insurance expertise.
That’s a little bit less than 5% of the gaping hole that exists in the General Fund, but $1 billion is still $1 billion. Out pops some budget control language that essentially results in a forced sale of SCIF’s book of business that would net $1 billion for the General Fund. No one is quite sure how that is supposed to happen, given that the policyholders are generally thought to own SCIF. This also may well be just a paper $1 billion that will allow the books to be closed on the current fiscal debacle, and when it doesn’t materialize, the state will be in better shape and really won’t need the money anyway. Or it will become a problem for the next governor.
If the $1 billion truly is Monopoly money, then no one told the officers and directors at SCIF. In a somewhat surprising—and gutsy—move, the SCIF board voted to oppose such a sale. This is only somewhat surprising from the standpoint that this board was hired to be independent and professional.
So when it acts independently and professionally, no one should say, “Wow, didn’t see that coming!”
The insurance commissioner, charged with protecting both consumers and the solvency of the state’s carriers, also opposed the idea. Given that he would have to deal with the consequences of a less-than-robust SCIF, it shouldn’t come as a surprise that this happened either.
CASE, the union representing attorneys, administrative law judges, and hearings officers, and SEIU are not terribly enamored with the efforts of SCIF President Jan Frank to modernize and restructure the operations of the largest workers’ comp carrier in California. And they don’t know or understand her efforts to protect them.
But that angst pales in comparison to what would happen if a furlough had in fact been upheld or if SCIF takes a surplus haircut to the tune of $1 billion. Now is not the time for harsh union rhetoric. But it is time to recognize where the true danger lies—not on Market Street but under the Capitol dome in Sacramento, and not with the SCIF board but with the governor, his chief of staff and the Legislature that ignores it.