Date: 04/07/2009

Final
SB09-281

SENATE COMMITTEE ON APPROPRIATIONS

Votes: View--> Action Taken:
conceptual page 4, lines 24-26. Put period after
conceptual to maintain "mutual fund company" statu
COW
L.001
motion Lay Over, but only accept testimony on the
reconsideration of L.001
FAIL
FAIL
PASS
Pass Without Objection
FAIL
PASS


09:35 AM -- Senate Bill 09-281

Sen. Shaffer B. presented the bill. Indicates that he will make references to the companion bill S.B. 09-273 (budget package bill). The senator stresses that moneys in the surplus fund are surplus, beyond the reserve requirements. The Insurance Commissioner determines reserve requirements. Sen Shaffer distributed a news article about Pinnacol and a performance audit of the entity. He mentioned other options such as a sale, or "bringing it into" state government. He stated that the stability of the company will not be altered by this bill and that this will not cause an increase in rates or a decrease in dividends paid to businesses that use Pinnacol.

Sen. Tapia would like to do both S.B. 09-273 and this bill simultaneously. Testimony for both bills will be done simultaneously.

Sen. White presented S.B. 09-273. The Senator indicates that he has some reservations about whether Pinnacol should be a quasi-governmental agency and its value to the state. Sen. White believes that the State does have justification for taking the action it is taken. And believes that by taking these steps it offsets the impact to Higher Education that has already been taken.

Sen. Harvey reviewed the history of the entity and asked Sen. Shaffer about the context of this history and what the taking of these surplus moneys means.

Sen. Tapia has indicated that he will limit presenters to 5 minutes.

Sen. Shaffer responded to Sen. Harvey's by responding with a series of questions and a statutory citation reflecting that Pinnacol is a state entity.

Sen. Harvey reiterated his previous statements.

Sen. Kopp has indicated that he would like to make a motion at a later point in time to lay the bill over. Sen. Kopp asked Sen. Shaffer, whose money it is in the surplus fund and what other entities serve in similar roles (insurer of last resort).

Sen. Shaffer made references to comments made by Congressman Coffman which support the necessity for this entity and indicated that there are no other insurers of last resort.

Sen. Sandoval asked why the bill strikes language related to Pinnacol leadership and wondered who would then be responsible for the entity.

Sen. Shaffer indicated that Pinnacol's board of directors would then be in command of the entity.


Sen. Tapia asked Sen. Shaffer and Sen. White's opinion to Sen. Kopp's motion to lay the bill over and both indicated they would oppose the motion.

Sen. Kopp made other commentary.
BILL:SB09-281
TIME: 10:14:31 AM
MOVED:Kopp
MOTION:motion Lay Over, but only accept testimony on the bill
SECONDED:
VOTE
Bacon
No
Harvey
Yes
Hodge
No
King K.
Yes
Kopp
Yes
Sandoval
No
White
No
Williams
No
Keller
No
Tapia
No
Final YES: 3 NO: 7 EXC: 0 ABS: 0 FINAL ACTION: FAIL
Sen. King raised concerns and wanted to explore all options. The senator believes that this bill does not solve the problem and does not believe that SB 281 and SB 273 should not be linked together and other commentary.
Sen. Tapia reiterated that this motion is to lay over not about the substance of the bill.

Sen. King continued by asking if the JBC would consider other options generated by the caucuses and expressed his frustration that other committees lack this ability.

Sen. White explained that caucuses will have the opportunity to generate any amendments as necessary and saw no reason why the Republican caucuses can't come up with other solutions.

Sen. Keller said that any amendments made will be considered, but must make a corresponding offset to balance any attempted changes made to the currently balanced budget. The senator also addressed questions related to Higher Ed cuts and the statutory and constitutional restrictions that are unique to Colorado. Sen. Keller reiterated that the state is now cutting core mission funding.

Sen. Tapia asked Sen. King if his questions were satisfied. Sen. King indicated that his questions were not answered and that he had questions related to substantive law in the Long Bill. Sen. Tapia reiterated that's why the budget package includes a series of bills which do address the substantive law issues.

Sen. Shaffer said he will work with Sen. King related to his concerns. If that means gaining late bill status to make these changes then he would gain his support.

Sen. Kopp discussed a letter from OSPB to the JBC and questioned the federal waiver process is and would like to gather clarification to this process.

Sen. Sandoval raised similar concerns that Sen. King did related to these being one-year fixes and not sustainable solutions. The senator expressed a need for a strategic plan about how to address the solution.

Sen. Tapia defended the JBC's decision and the time taken making these decisions.




10:32 --
Bill Marshem, Vice President of Finance at Adams State College. Supports the bill in order to ward off the cuts to Higher Ed if this doesn't pass. Speaking on behalf of its students and its peer universities. Indicates that it would have to raise tuition 135% to remain whole and indicates this is not a feasible option.

Sen. Keller indicated that she understands his concerns and agrees that he is "100% right".
Sen. Harvey made further commentary.


10:40 --
Steve Durham, Tim Jackson, John Medved.

Steve Durham: Denver Metro Chamber of Commerce, Colorado Home Builders, Colorado Concern. Opposes legislation. Did indicate that Sen. Shaffer and his groups have been in communication. Indicated that he and his entitites are mindful of the issues the State faces. Noted that when Pinnacol was spun off, it took with it a $500M liability and took this off of the State's financial balance sheet. Reiterated that in order to provide rate stabilization, the fund surplus ensures this from market fluctuations. Further declared that the business community sees the fund and its balance as the property of the business community. Requests more time to develop more long term sustainable solutions. Has issues with mandating dividends, per S.B. 09-281.

Sen. Harvey harkened back to comments made by Sen. Shaffer about past legislators trying to sell Pinnacol's assets. Speaking specifically to Speaker Dean's interest years ago.

Sen. Shaffer asked who carried the legislation in 1988. Steve Durham indicated that he did.

Tim Jackson: Auto Resalers in Colorado. Ditto Steve Durham's testimony. Made reference to former names of the entity.

John Medved: Medved Auto Complex owners. Opponent to the bill. Speaking as an employer and indicated the cuts he's made to his businesses (cited amounts up to 40 percent).

Sen. White indicated that wants Mr. Medved to continue to receive rebates, etc. He indicated that his business was initially a high risk insured. Sen. White had concerns about how in the first place Pinnacol was able to accrue such high fund balances and has learned that it is seeking a new line of insurance through the Insurance Comissioner. Mr. Medved responded.

Sen. Williams asked questions about Mr. Medved about his business policies. Mr. Medved responded.

Sen. Kopp made commentary.

Sen. Harvey asked if the witnesses had ideas of how to cut the budget and asked of Mr. Medved what the state should do, despite not being versed in the state budget.

Mr. Medved made comments that legislators need to "take a new approach"


11:04 --
Don Hicks, Bob Mooney, Tony Gagliardi

Don Hicks: Car dealership owner. Opposition to the bill. Believes that the entities contributing to this risk mitigation entity (insurance). That all of the surplus belongs to the premium holders.

Tony Gagliardi, Colorado State Director of the Federation of Small Business. Opposition to the bill. Not invited to discussions of the bill. Indicates that 80 percent of the moneys in the fund belong to small business. Provided some statistics about his membership's interests.

Bob Mooney, Denver West Towing. Opposes the bill. Believes that by mitigating risks, small business get better borrowing ratings which permits business expansion.


11:10 --
John Connolly, Mike Pierce, Dan O'Neil

John Connolly: Towing Industry. Opposes the bill. Can't afford premium incresases.

Mike Pierce: Independent insurance agent. Believes that the workers compensation system in Colorado used to be a disaster. Believes that a huge transformation in workers' compensation has occurred in the State. Believes rates are going to go up, dividends will go away, and will hurt small businesses.

Dan O'Neil: representing Pinnacol Assurance. Believes after a cursory review of the bills, these pieces of legislation will strategically impact the organization. Explained the federal tax exemption ("50c27"). Also has a state premium tax exemption. Mr. O'Neil explained why Pinnacol has these tax exemptions (insur high-risk organizations) also is "monoline monorisk" -- can only insure in the state of CO. Other organizations can insur across many states to reduce risk. Refutes Sen. Shaffer's claim that the entity does not have sovereign immunity. Indicated that the entity is audited 3 ways: federal (every 3 yrs), state financial audit, and workers compensation audit.

Sen. King had questions related what other states have similar entities and made commentary about it being a one-time fix. Also wondered if Pinnacol will entertain legal action to resist action taken by the state. Mr. O'Neil indicated that Pinnacol has a fiduciary obligation to its policy holders.

Sen. Harvey had follow-up questions.

Sen. White asked for clarification to some of the comments made of Mr. O'Neil. Mr. O'Neil reiterated that the organization goes through a process called Enterprise Risk Management which enables the organization to determine what surplus is required.

Discussion between Sen. Shaffer and Mr. O'Neil ensued.

Sen. Harvey asked if actuarial data used by the organziation, take into account hyper inflation?

Mr. O'Neil said he does not know if he can answer that question and provided anecdotal information about a Supreme Court case related to this question and other operational processes to determine reserve levels.


11:33 --
Robert Sakata, Virginia Love, Greg Fulton

Virginia Love: Local Chambers of Commerce. Opposes bill. Believes the state can not retroactively change the legal status of Pinnacol. Quoted a Supreme Court decision authored by Chief Justice Mularkey indicating that Pinnacol is not a state agency, but rather more of a state sub-division.

Greg Fulton: Trucking. Opposes bills. Indicates that the trucking industry is high risk in nature ("bad things happen out there").

Robert Sakata: family farm owner in Brighton, CO. Has coverage through Pinnacol. Believes that Pinnacol has been helpful with mitigating risks associated with his business (onions).


11:42 --
Sonja Guenther, Arther Powers, John Berry, John Strayer

Sonja Guenther: 30 years of insurance experience. Opposes legislation.

John Berry: Workers' Compensation Cooalition. Opposes legislation. Was Pinnicol's lobbyist in 1991. Said the changes made in the past has made the organization make a "metamorphasis". Indicates that Pinnacol is a $2.0 B organization. Of that amount $1.4B is in reserves. Of this amount $1.0 B is surplus. He indicates that this surplus is its "rainy day" fund. Dividends are over and above what's needed to keep the fund and the organization stable.

Arther Powers: Represents THRIVE. Supports legislation. He was the first person to come to the committee the idea to carry the bill. Indicates that Pinnacol has been aggressive in its insuring behaviors which damages people's abilities to obtain high risk insurance.

John Strayer: Professor of Poli Sci, CSU. No position. Requests that a sustainable funding source be provided to Higher Education.


Sen. Shaffer indicated he would like to move forward and to provide a diagram on the chalkboard explaning the intent of the legislation through a graphic. The Senator explaned his graphic. Discussed that $1.03B is set aside in the fund as reserves. Statute requires an adequate surplus be maintained by the entity to remain solvent. This amount is $113M above reserves. Sen Shaffer eplained that he is isolating the issue to the moneys above the reserve and the "adequate surplus". This amount is equal to approximately $787M.

Sen Shaffer provided an overview of the testimony presented.

Sen. Harvey asked if the Pinnacol representative could have the opportunity to respond to Sen Shaffer's explanation of the moneys managed by the organization.

Ken Ross, CEO & President of Pinnacol Assurance. The quarterly actuaries that must be kept in reserves which is equal to $1.3B. Mr. Ross indicates that the number that the Commissioner of Insurance would be comfortable would be substantially higher than $113M, thus reducing the surplus available for the state to take. He Indicates that the amount is actually $640M. Mr. Ross indicates that the organization would not be able to provide the current level of services without a rate increase.

Sen. Shaffer responded by indicated that the Commissioner of Insurance provided him a number of $113M. Staute requires that the amount be at a level comfortable to that of the Insurance Commissioner.

Mr. Ross requested that the Insurance Commissioner provide the information the Committee requires.

Sen. Shaffer stated that this bill is an idea to help protect Higher Education.

Sen. Sandoval said she is not comfortable with this as a solution but will not vote against now but could change later.

Sen. Bacon said that the spectre of losing Higher Education for just one year, will have long term consequences. If this is not the solution. The people will have to come up with "a" solution. If this situation is to be prevented, then Higher Ed requires a sustainable funding stream.

Sen. White said that if federal moneys can somehow offset this action, then so be it and he would change his course with respect to this legislation and be willing to revist later.

Megan Davission, JBC Staff,
BILL:SB09-281
TIME: 12:50:40 PM
MOVED:White
MOTION:L.001
SECONDED:
VOTE
Bacon
Harvey
Hodge
King K.
Kopp
Sandoval
White
Williams
Keller
Tapia
Not Final YES: 0 NO: 0 EXC: 0 ABS: 0 FINAL ACTION: Pass Without Objection


Sen. King had questions about the bill. Sen. Shaffer provided answers. Discussion ensued.
BILL:SB09-281
TIME: 12:53:49 PM
MOVED:King K.
MOTION:conceptual to maintain "mutual fund company" status -- page 3, lines 16-19
SECONDED:
VOTE
Bacon
No
Harvey
Yes
Hodge
No
King K.
Yes
Kopp
Yes
Sandoval
Yes
White
No
Williams
No
Keller
No
Tapia
No
Final YES: 4 NO: 6 EXC: 0 ABS: 0 FINAL ACTION: FAIL
Sen. Shaffer indicated this applies more to SB 273 than SB 281.


BILL:SB09-281
TIME: 01:00:57 PM
MOVED:King K.
MOTION:conceptual page 4, lines 24-26. Put period after "policy holders." and strike the remainder of lines 25 and 26.
SECONDED:
VOTE
Bacon
No
Harvey
Yes
Hodge
No
King K.
Yes
Kopp
Yes
Sandoval
No
White
No
Williams
Yes
Keller
No
Tapia
No
Final YES: 4 NO: 6 EXC: 0 ABS: 0 FINAL ACTION: FAIL
Sen. Shaffer explains his opposition to the amendment. He explains this section of the bill and its purpose.


BILL:SB09-281
TIME: 01:04:27 PM
MOVED:Kopp
MOTION:reconsideration of L.001
SECONDED:
VOTE
Bacon
Yes
Harvey
No
Hodge
Yes
King K.
No
Kopp
No
Sandoval
Yes
White
Yes
Williams
Yes
Keller
Yes
Tapia
Yes
Final YES: 7 NO: 3 EXC: 0 ABS: 0 FINAL ACTION: PASS
Sen. Shaffer explained that there is a current requirement for an annual audit.


BILL:SB09-281
TIME: 01:06:27 PM
MOVED:White
MOTION:COW
SECONDED:
VOTE
Bacon
Yes
Harvey
No
Hodge
Yes
King K.
No
Kopp
No
Sandoval
Yes
White
Yes
Williams
No
Keller
Yes
Tapia
Yes
Final YES: 6 NO: 4 EXC: 0 ABS: 0 FINAL ACTION: PASS
Sen. Harvey provided commentary.