California Discussing Sale of State Workers’ Compensation Insurer

Rumors that California is considering selling the State Compensation Insurance Fund to help close the state budget gap are true, but government officials said the idea has amounted to no more than discussion at this point.

Gov. Arnold Schwarzenegger’s Administration is predicting a budget shortfall of $3.3 billion in the current fiscal year, which will grow to $14.5 billion next year.

“These problems are not the result of a fundamental crisis in California’s economy. Indeed, we remain a diverse and dynamic economic powerhouse that will continue to grow and lead the world in innovation. These problems are the result of a budget system where there continues to be no linkage between revenues and spending,” Schwarzenegger said in a statement. “If we are to avoid these kinds of fiscal crises in the future, and if we truly want to bring fiscal health to this state for the long term, we must resolve to fundamentally fix the budget system this year — once and for all.”

Established by the California Legislature in 1914, State Compensation Insurance Fund is a self-supporting, nonprofit enterprise that provides workers’ compensation insurance to California employers at cost with no financial obligation to the public. With assets resulting from its book of business, surplus and reserves, there’s no doubt that selling the quasi-public insurer would create an inflow to the state’s general fund.

The sale of State Fund is “certainly a a proposal that ‘s been floating around. It was put forth by a couple of people,” confirmed Rachel Cameron, spokeswoman for the Governor’s office. However, she said the sale of SCIF was no more likely to become a reality than any other budget proposal being discussed.

“The Governor has said when it comes to the budget, everything is on the table. He will look at [the proposal to sell SCIF] like any other proposal coming his way in closing the budget. The Governor is not taking a position on this [SCIF sale] proposal at the time,” Cameron said.

Jennifer Vargen, SCIF spokeswoman, acknowledged that she’s heard the rumors about the proposal to sell the state workers’ comp insurer. However, she indicated the idea was unlikely to pass muster.

“We understand that with the state being in such an extreme financial circumstance, with the deficit in the budget that the state is facing and a political climate that isn’t friendly to new taxes, it’s not really surprising that policymakers are looking everywhere for new revenue and discussing a wide array of proposals to generate revenue,” Vargen said. “But the fact is that the idea of selling state fund’s assets or privatizing state fund has been looked at in previous times and was determined politically, fiscally and practically infeasible due to the complexity and significant constitutional and legal hurdles associated with such a concept. Actually in the past, California business and private insurers have not supported this concept, recognizing that state fund is effective in serving California’s residual market with no additional cost to the public.”

The state Legislature is supposed to approve a budget by June 15, but that date is consistently missed each year. If the budget is not approved, payments to state contractors, vendors, local governments and health care providers are delayed, forcing the state to incur larger bills later due to interest.