House Committee on Business Affairs and Labor (04/06/2010)

Final
STAFF SUMMARY OF MEETING

HOUSE COMMITTEE ON BUSINESS AFFAIRS AND LABOR

Date:	04/06/2010	ATTENDANCE

Time:	09:56 AM to 12:47 PM	Balmer	X
		Bradford	X
Place:	HCR 0112	Casso	X
		Kerr A.	X
This Meeting was called to order by		Liston	X
	Representative Rice	Middleton	X
		Priola	X
This Report was prepared by		Soper	X
	Christie Lee	Stephens	X
		Gagliardi	X
		Rice	X
		X = Present, E = Excused, A = Absent, * = Present after roll call

Bills Addressed:		Action Taken:
HB10-1356 SB10-094 SB10-120		Postponed Indefinitely Amended, Referred to the Committee of the Whole Referred to Appropriations

09:57 AM -- House Bill 10-1356

Representative Ryden, prime sponsor, presented House Bill 10-1356 concerning enactment of the "Workers' Compensation Policyholder Protection Act of 2010", and, in connection therewith, requiring the distribution of excess surplus funds held by Pinnacol assurance to Pinnacol assurance policyholders and limiting the insurance commissioner's discretion with respect to the prior approval of workers' compensation pure premium rates filed by a rating organization. Recommended by the Interim Committee to Study Issues Related to Pinnacol Assurance, HB10-1356 requires Pinnacol Assurance to distribute surplus holdings in excess of 800 percent of risk based capital (RBC) to policyholders. RBC is the amount of required capital that an insurance company must maintain based on the inherent risks in the insurer’s operations and is how the Commissioner of Insurance measures solvency. The bill also directs the commissioner to choose the lowest workers' compensation pure premium rate recommended either by a rating organization or by the independent actuary employed by the commissioner. The commissioner may choose a different rate, but must justify the decision in the final agency order. Prior to a public hearing on rates, the commissioner will post the recommendations and supporting materials on the Division of Insurance website.

10:00 AM

Representative Ryden talked about the interim committee discussions that took place over the summer and explained why the bill was necessary. She distributed Amendment L.004 (Attachment A). The amendment requires the insurance commissioner to conduct a rate review every year and allows Pinnacol to retain 1000 percent of RBC for its surplus. Representative Ryden also talked about Pinnacol's reserves.

10:04 AM -- Jeff Tetrick, Chief Financial Officer, Pinnacol Assurance, testified against the bill and distributed a handout (Attachment B). He talked about some of the terms used throughout the bill, including RBC and the issues he has with the bill. Mr. Tetrick talked about the percentage of RBC in the bill which is set at 800 percent and explained that there is no actuarial basis for the number and discussed how Pinnacol currently handles its surplus. He talked about the statutes that regulate Pinnacol. Mr. Tetrick talked about the dividends that have been returned to policyholders and the surplus Pinnacol holds.

10:15 AM

Representative Soper asked whether Amendment L.004 makes the bill more palatable. Mr. Tetrick said he is still concerned that as risks change, they would still be limited in what they can do in response. Representative Liston asked Mr. Tetrick to elaborate on the effects the recent economy has had on Pinnacol. Mr. Tetrick said currently they are concerned about medical inflation and the federal health care legislation and how it would effect Pinnacol. Representative Liston asked whether the bill could cause a downward spiral and cause them to lose market share. Mr. Tetrick responded. Representative Bradford explained the types of workers' compensation claims she sees in her business and her experience with them as a policyholder of Pinnacol and asked where the 800 percent RBC came from. Mr. Tetrick said he did not know. Representative Bradford asked whether he was involved in forming that number. Mr. Tetrcik said he was not. Representative Bradford asked how many policyholders have received dividend checks. Mr. Tetrick talked about the percentage of policyholders that have received dividends and the amount Pinnacol has returned in dividends. Representative Liston asked why the bill is not applicable to other workers' compensation companies. Mr. Tetrick said he did not know.

10:23 AM -- Toni Gagliardi, representing the National Federation of Independent Business, testified against the bill. He said he did meet with the bill sponsor to discuss how the 800 percent was arrived at and he found out the figure was arbitrary. Representative Liston asked whether businesses have asked for this bill and more dividends. Mr. Gagliardi responded. Representative Soper asked about Amendment L.004 and whether it makes the bill more palatable. Mr. Gagliardi responded explaining that insurance is complicated and talked about the negative effects the bill would have due to an arbitrary number being set. Representative Bradford asked whether other companies have been the target of similar legislation. Mr. Gagliardi said he is not aware of any or any other state that regulates insurance in this manner. Representative Liston asked about the dividend policy of Berkshire Hathaway.

10:30 AM -- Michael Gifford, representing the Associated General Contractors of Colorado, testified against the bill. He talked about commercial construction companies and the importance of predictability in rates to them, along with a Mod rate. He said if rates are set too low and expenses too high, you cannot bid on certain projects. Mr. Gifford said Pinnacol does a very good job setting the rates so the companies don't have changes in the Mod rate.

10:33 AM

Representative Soper asked whether the Mod rate varies from company to company. Mr. Gifford explained that the Mod rate is based on money coming in and expenses going out.

10:34 AM -- John Berry, representing the Workers' Compensation Coalition, testified in support of the bill. He talked about the discussions between Pinnacol and the Governor about making the company private for $330 million. Mr. Berry said he believes the $330 million should be returned to the policyholders. Representative Soper asked a question.

10:42 AM -- John Postolowski, Scott Lloyd, and Patrick Knepler, representing the Colorado Division of Insurance, testified on the bill. Mr. Knepler talked about the surplus cap. Representative Stephens asked whether the division weighed in on the 800 percent. Mr. Lloyd said he is not aware where the number came from. Representative Liston asked why the bill only applies to Pinnacol. Mr. Postolowski responded. Representative Liston commented on the bill and asked again why the bill only applies to Pinnacol. Mr. Postolowski said Pinnacol is statutory and not the same as other companies. He talked about a not-for-profit health insurance provider where this happened before where the company had an excess surplus and the insurance commissioner made the company provide dividends. Representative Rice stated current law allows the insurance commissioner to adjust surplus on a case by case basis and questioned the need for a formula as proposed in the bill. Mr. Knepler responded. Representative Rice asked a follow-up question regarding the need for the legislation. Representative Soper asked whether the division supports Amendment L.004. Mr. Knepler said the division supports the bill with the amendments, including Amendment L.004.

10:53 AM -- Robert Ferm, representing the American Insurance Association, addressed Amendment L.004. He suggested some additional changes to the bill. Mr. Ferm said they support Amendment L.004.

10:57 AM

Representative Ryden gave some closing remarks on the bill. She talked about the 1000 percent of RBC and said the number is not arbitrary, rather, it is an average of other workers' compensation companies' RBC. She talked about the differences between Pinnacol and other worker's compensation companies. Representative Ryden stressed that Pinnacol should be reviewed on a yearly basis.


BILL:	HB10-1356
TIME:	11:01:36 AM
MOVED:	Gagliardi
MOTION:	Moved amendment L.004 (Attachment A). The motion passed without objection.
SECONDED:	Soper
		VOTE
	Balmer
	Bradford
	Casso
	Kerr A.
	Liston
	Middleton
	Priola
	Soper
	Stephens
	Gagliardi
	Rice
Not Final YES: 0 NO: 0 EXC: 0 ABS: 0 FINAL ACTION: Pass Without Objection

11:03 AM

Representative Priola commented on the bill and talked about the issues with under reserves in other industries. He said he does not want to push Pinnacol to insolvency if a catastrophic event should occur. Representative Liston commented on the bill and talked about the effects the bill would have on future dividends. He also talked about the fact that policyholders did not come and speak in favor of the bill. Representative Liston talked about Bershire Hathaway, Inc., which does not pay dividends and its success. Representative Soper said he struggles with the bill and talked about his experience sitting on the Pinnacol board and said with the amendment he is in support of the bill. Representative Bradford also commented on the bill and talked about current statute and the purpose of the statute. Representative Rice also commented on the bill and talked about the history of workers' compensation in Colorado and talked about Pinnacol's success and expressed his concerns placing a formula in statute and said he feels the division already has the authority to adequately regulate the company.


BILL:	HB10-1356
TIME:	11:09:48 AM
MOVED:	Gagliardi
MOTION:	Moved to refer House Bill 10-1356, as amended, to the Committee of the Whole. The motion failed 4-7.
SECONDED:	Soper
		VOTE
	Balmer	No
	Bradford	No
	Casso	No
	Kerr A.	Yes
	Liston	No
	Middleton	Yes
	Priola	No
	Soper	Yes
	Stephens	No
	Gagliardi	Yes
	Rice	No
Not Final YES: 4 NO: 7 EXC: 0 ABS: 0 FINAL ACTION: FAIL


BILL:	HB10-1356
TIME:	11:10:35 AM
MOVED:	Balmer
MOTION:	Moved to postpone House Bill 10-1356 indefinitely. The motion passed 8-3.
SECONDED:	Stephens
		VOTE
	Balmer	Yes
	Bradford	Yes
	Casso	Yes
	Kerr A.	No
	Liston	Yes
	Middleton	Yes
	Priola	Yes
	Soper	No
	Stephens	Yes
	Gagliardi	No
	Rice	Yes
Final YES: 8 NO: 3 EXC: 0 ABS: 0 FINAL ACTION: PASS

11:11 AM -- Senate Bill 10-094

Representative Rice, prime sponsor, presented Senate Bill 10-094 concerning the definition of capital construction appropriation for purposes of the art in public places program administered by the State Council on the Arts. The reengrossed bill clarifies the types of public construction projects required to purchase art as part of the Art in Public Places Program. Specifically, the bill clarifies that the 1 percent allocation for public art be calculated based on the state-funded portion of a project's capital construction costs. It also specifies that funding for art must be included for projects that are funded through lease-purchase agreements. Lastly, the bill exempts certain types of projects from the public art requirement, including agricultural facilities construction, public and charter school construction, redevelopment and clean-up of contaminated sites, and controlled maintenance of existing facilities.

11:15 AM -- Matt Cheroutes, representing the Office of Economic Development and International Trade, testified in support of the bill. He gave some examples of art and the benefits it has had on the state and where the money has gone. Representative Soper commented on art.

11:18 AM -- Steve Seifert, representing the Arts for Colorado, testified in support of the bill and talked about the history of the Art in Public Places Program that was originally passed in the 1970s. He described the questions that arise related to when the 1 percent for art in public places applies.


BILL:	SB10-094
TIME:	11:22:34 AM
MOVED:	Rice
MOTION:	Moved amendment L.012 (Attachment C). The motion passed without objection.
SECONDED:	Casso
		VOTE
	Balmer
	Bradford
	Casso
	Kerr A.
	Liston
	Middleton
	Priola
	Soper
	Stephens
	Gagliardi
	Rice
Not Final YES: 0 NO: 0 EXC: 0 ABS: 0 FINAL ACTION: Pass Without Objection


BILL:	SB10-094
TIME:	11:23:47 AM
MOVED:	Rice
MOTION:	Moved to refer Senate Bill 10-094, as amended, to the Committee of the Whole. The motion passed 10-1.
SECONDED:	Casso
		VOTE
	Balmer	No
	Bradford	Yes
	Casso	Yes
	Kerr A.	Yes
	Liston	Yes
	Middleton	Yes
	Priola	Yes
	Soper	Yes
	Stephens	Yes
	Gagliardi	Yes
	Rice	Yes
Final YES: 10 NO: 1 EXC: 0 ABS: 0 FINAL ACTION: PASS

11:25 AM -- Senate Bill 10-120

Representative Rice, prime sponsor, presented Senate Bill 10-120 concerning the inclusion of prepaid wireless telephone service among the services subject to the surcharge that funds enhanced 911 emergency services. The bill imposes a charge of 1.4 percent on the retail sale of prepaid wireless telephone service to fund local enhanced 911 services (E911). The Department of Revenue will collect the E911 charges and remit them to the local 911 authority boards based on a formula established by the Public Utilities Commission (PUC) in the Department of Regulatory Agencies. Retail sellers can retain 2 percent of the E911 charges collected from consumers, and are subject to penalties for failure to collect or remit charges. The Department of Revenue is authorized to retain up to $450,000 of the E911 charges to cover the department's initial start-up costs and up to 3 percent per year for ongoing administration.

11:28 AM -- Chris Howes, representing the Colorado Retail Council, testified in opposition to the bill and talked about the issues the bill will create for retailers and the cost of compliance. He talked about an amendment that was passed in the Senate that raised the percentage to 3 percent from 2 percent. Mr. Howes also distributed the Retail Sales Tax Compliance Costs: A National Estimate prepared by Price Waterhouse Coopers (Attachment D).

11:37 AM

Representative Soper asked about the current percentage. Representative Liston asked why Mr. Howes was not included in the earlier discussions about the bill. He also asked who the major retailer is that is in support of the bill when all the others are not. Representative Liston asked how many telecommunications vendors there would be, Mr. Howes deferred to the retailers and guessed between 25 and 100. Representative Liston talked about 7-11 and the requirements that the retailers would have to collect the tax and remit it to the state and the retailer would receive 2 percent. Representative Liston commented on the fiscal note. Representative Stephens expressed her concerns with the bill and the effects it will have on retailers.

11:46 AM -- Kevin Bommer, representing the Colorado Municipal League (CML), testified in support of the bill and stated that surcharges should be collected in a way that is fair and equitable. The bill, he said, was the effort of several years to address the gap on the remittance of 911 surcharges. He shared his views about the need for 911 services and also stated the bill is supported by other retailers. He addressed the change in the Senate from 2 percent to 3 percent. He also talked about the Massachusetts model and their efforts to remove their existing law and replace it with the NCSL model, which is Senate Bill 120. He also added that the counties are in favor of the bill as well as CML.

11:54 AM

Representative Liston commented on the study that was distributed by Mr. Howes and asked if Mr. Bommer feels it is not relevant because it is out of date. Mr. Bommer explained that the study does not have anything to do with the issue at hand. Representative Liston responded and commented on the fiscal note and the fact that it will cost 15 percent the first year. Representative Rice explained the need for the costs in the bill. Representative Liston stated that it would be easier to collect from the small number of telecommunications companies rather than thousands of retailers.

12:03 PM -- Kimberley Culp, representing the 911 Task Force, testified in support of the bill and talked about the importance that they receive funds. She asked that some letters of support from other organizations be entered into the record (Attachment E). Ms. Culp mentioned three states have already passed the model law and eight states have introduced it this session, including Massachusetts. She addressed the fiscal note and said the retailers can retain up to 3 percent, but should be more around about 1 percent. Ms. Kulp said they are opposed to the 4 percent amendment. She said it is also not mandatory for retailers to participate and sell prepaid wireless and mentioned that both Wal-mart and Walgreens are in support of the bill. She stated that the bill is a national model.

12:10 PM -- Carl Simpson, representing Denver 911 for the City and County of Denver, testified in support of the bill. Mr. Simpson explained the history of the 911 system and the rapid increase of wireless calls. He noted that because people are migrating away from land line phones, fewer surcharges are being paid and the revenue impact is felt by local entities. Mr. Simpson talked about the issues with 911 and cell phones due to their mobility.

12:16 PM -- Bill Soards, President of AT&T Colorado, testified in support of the bill. Representative Balmer asked a question about how prepaid phones compare to month subscriber services since they are not linked to a particular consumer. Mr. Soards explained the difference between post-paid, monthly consumers versus a pre-paid consumer.

12:20 PM -- Edie Ortega, representing Century Link and she is an industry member on the PUC 911 task force, testified in support of the bill. She talked about when the 911 policy was initially created.

12:21 PM -- Grier Bailey, representing the Colorado Wyoming Petroleum Marketers Association, testified on the bill. He talked about the various taxing jurisdictions and the vendor provider fee. Representative Liston said it would make more sense to collect from the wholesale level rather than the retail level. Mr. Bailey responded. A discussion ensued regarding this issue. Representative Bradford talked about the difficulty of tracking transactions at the wholesale level. Mr. Bailey responded. Representative Priola also weighed in on the conversation.

12:29 PM -- Lyle Williamson, representing Verizon, testified in support of the bill and talked about the Massachusetts law.

12:31 PM

Representative Rice gave some closing remarks on the bill.


BILL:	SB10-120
TIME:	12:33:05 PM
MOVED:	Liston
MOTION:	Moved amendment L.005 (Attachment F). The motion was withdrawn.
SECONDED:	Stephens
		VOTE
	Balmer
	Bradford
	Casso
	Kerr A.
	Liston
	Middleton
	Priola
	Soper
	Stephens
	Gagliardi
	Rice
Not Final YES: 0 NO: 0 EXC: 0 ABS: 0 FINAL ACTION: WITHDRAWN


BILL:	SB10-120
TIME:	12:37:43 PM
MOVED:	Liston
MOTION:	Moved amendment L.008 (Attachment G) [see substitute motion on following vote sheet]. The motion failed 4-7.
SECONDED:	Stephens
		VOTE
	Balmer	Yes
	Bradford	No
	Casso	No
	Kerr A.	No
	Liston	Yes
	Middleton	No
	Priola	Yes
	Soper	No
	Stephens	Yes
	Gagliardi	No
	Rice	No
Not Final YES: 4 NO: 7 EXC: 0 ABS: 0 FINAL ACTION: FAIL


BILL:	SB10-120
TIME:	12:38:35 PM
MOVED:	Soper
MOTION:	Move a substitute motion on page 5, line 13 of the bill to strike "two" and substitute "one". The motion failed due to the lack of a second.
SECONDED:
		VOTE
	Balmer
	Bradford
	Casso
	Kerr A.
	Liston
	Middleton
	Priola
	Soper
	Stephens
	Gagliardi
	Rice
Not Final YES: 0 NO: 0 EXC: 0 ABS: 0 FINAL ACTION: FAIL DUE TO LACK OF A SECOND


BILL:	SB10-120
TIME:	12:39:35 PM
MOVED:	Liston
MOTION:	Moved amendment L.009 (Attachment H). The motion failed 3-8.
SECONDED:	Stephens
		VOTE
	Balmer	No
	Bradford	No
	Casso	No
	Kerr A.	No
	Liston	Yes
	Middleton	No
	Priola	Yes
	Soper	No
	Stephens	Yes
	Gagliardi	No
	Rice	No
Not Final YES: 3 NO: 8 EXC: 0 ABS: 0 FINAL ACTION: FAIL


BILL:	SB10-120
TIME:	12:40:49 PM
MOVED:	Liston
MOTION:	Moved amendment L.010 (Attachment I). The motion failed 5-6.
SECONDED:	Stephens
		VOTE
	Balmer	Yes
	Bradford	Yes
	Casso	No
	Kerr A.	No
	Liston	Yes
	Middleton	No
	Priola	Yes
	Soper	No
	Stephens	Yes
	Gagliardi	No
	Rice	No
Not Final YES: 5 NO: 6 EXC: 0 ABS: 0 FINAL ACTION: FAIL


BILL:	SB10-120
TIME:	12:42:21 PM
MOVED:	Liston
MOTION:	Moved amendment L.007 (Attachment J). The motion failed 4-7.
SECONDED:	Stephens
		VOTE
	Balmer	Yes
	Bradford	No
	Casso	No
	Kerr A.	No
	Liston	Yes
	Middleton	No
	Priola	Yes
	Soper	No
	Stephens	Yes
	Gagliardi	No
	Rice	No
Not Final YES: 4 NO: 7 EXC: 0 ABS: 0 FINAL ACTION: FAIL

12:44 PM

Representative Stephens asked whether Representative Rice would work with her in coming up with a new number. Representative Rice stated that the fee is meant to cover the start up costs. Representative Liston commented on the vendor fee.


BILL:	SB10-120
TIME:	12:46:48 PM
MOVED:	Rice
MOTION:	Moved to refer Senate Bill 10-120 to the Committee on Appropriations. The motion passed 9-2.
SECONDED:	Kerr A.
		VOTE
	Balmer	Yes
	Bradford	Yes
	Casso	Yes
	Kerr A.	Yes
	Liston	No
	Middleton	Yes
	Priola	Yes
	Soper	Yes
	Stephens	No
	Gagliardi	Yes
	Rice	Yes
Final YES: 9 NO: 2 EXC: 0 ABS: 0 FINAL ACTION: PASS

12:47 PM

The committee adjourned.