California Passes Budget Revisions
We are very concerned that the proposed sale appears to be driven by the need for cash.
The California Legislature has passed the 2009-10 budget, instituting cuts and other measures to solve a $25.3 billion shortfall.
The bipartisan solution was the product of several months of negotiations and public hearings on how to address the historic downturn in the economy by cutting all areas of government while keeping the state’s social service safety net intact, according to Senate President pro Tem Darrell Steinberg, D-Sacramento. He noted that with this solution, the state has resolved more than $60 billion worth of deficit since January 1.
“There are a whole host of decisions on the cuts side that pain me greatly — deep cuts to education, to health and human services and to local government. Given the circumstances, I am grateful for all the things we were able to save,” Steinberg said in his speech before the Senate budget vote took place.
Included in the budget is a proposal to sell a portion of the State Compensation Insurance Fund’s assets for $1 billion. However, the bill is a study bill that sets forth a series of conditions that would have to be met to transact any sale, including the agreement of the State Fund’s board of directors who earlier this month issued a resolution opposing any sale of the insurer’s assets and liabilities.
“Even though the actual sale of State Fund assets is unlikely to occur, the suggestion of a sale triggers more questions than answers,” said Clark Payan, CEO of Insurance Brokers and Agents of the West (IBA West). “We are very concerned that the proposed sale appears to be driven by the need for cash to solve the budget problem and don’t see that anyone has considered the long term effect of a sale. Is it prudent action to take if the short term goal puts California businesses and employers at risk? The question of the valuation also needs to be considered.”
Payan said he contacted State Fund to discuss IBA West’s concerns about the sale of brokers’ expirations among other issues. “Are they including broker-placed business in the valuation of the sale? Our position is that brokers own the business they’ve placed with State Fund, so broker-placed business should not be included or contemplated in a sale,” he said.
SCIF added that previous proposals to sell its assets have failed.
“The idea of either selling or privatizing State Fund has surfaced without success at various points in our history. In the past these proposals have always been dropped after considering the legal challenges as well as the risks to the market and economy. While there’s no guarantee the outcome this time will be similar, the risks have not changed and in fact may be greater given the recession,” said Jennifer Vargen, SCIF spokeswoman.
Vargen added that because the legislation “establishes a process that may take some time,” it wants customers to know that SCIF is open for business and remains focused on fulfilling its mission of “providing California businesses a strong and stable option for their workers’ compensation insurance.”
Nevertheless, legislators were proud that they were able to agree on a budget so that the state can stop issuing registered warrants, or IOUs. More than 27,000 individuals and companies began receiving IOUs in July, according to State Controller John Chiang.
“These are painful solutions for all Californians and many of the cuts we have to make would be unthinkable if we weren’t in the midst of an unprecedented and ongoing recession that is plaguing our nation and our state,” said Assembly Speaker Karen Bass.
To view details of the Senate budget revision, visit www.senate.ca.gov/ftp/SEN/COMMITTEE/STANDING/BFR/_home/2009FINALBUDGETREVISIONS.pdf. The Assembly’s budget version is similar, although it excludes a provision that would have provided $1 billion in local gas tax revenue and the Assembly version does not support offshore oil drilling in the Santa Barbara Channel.