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Dan Pilcher
CACI Senior Vice President
& Chief Operating Officer
Phone: 303.866.9600
E-Mail:
dpilcher@cochamber.com
Friday, April 3, 2009
The JBC’s (Proposed) Great Pinnacol Assurance
Raid
In a jaw-dropping move Wednesday, the powerful
Joint Budget Committee (JBC) voted to cut $300
million from higher education funding in the
fiscal year beginning July 1st, which is on top
of $50 million that the JBC had already cut.
The $300 million cut would reduce by half the
state’s funding of higher education for the
2009-2010 fiscal year.
The JBC would spare higher education from this
drastic reduction, however, provided Pinnacol
Assurance forks over $500 million from its
reserves.
Pinnacol Assurance is a CACI member. CACI
strongly opposes this action because Pinnacol
is—under State law--the State’s “insurer of last
resort” and is thus mandated to sell insurance
to any company that applies. A major disruption
of the workers’ compensation insurance market
would result from such an action, which would
harm Colorado’s business climate.
The JBC wants to give $300 million of the
Pinnacol money to higher education and place the
other $200 million in the state’s reserve fund.
The Pinnacol Board of Directors, however, voted
to reject the JBC request, according to Ken
Ross, Pinnacol President and CEO, who was quoted
today in The Denver Post. Ross cautioned
that Pinnacol might take legal action against
the State if the legislature changes the law
that governs Pinnacol to divert its assets.
In 2002, the legislature enacted a law creating
in the State Treasury the “Pinnacol Assurance
fund, for the benefit of injured and the
dependents of killed employees . . . “ The
statute goes on to say:
“All revenues, moneys, and assets of Pinnacol
Assurance belong solely to Pinnacol Assurance.
The state of Colorado has no claim to nor any
interest in such revenues, moneys, and assets
and shall not borrow, appropriate or direct
payments from such revenues, moneys, and assets
for any purpose.”
About two-thirds of its assets are kept in
reserve to cover liabilities as stipulated by
Pinnacol’s actuaries. If the State carves out
$500 million from the remaining one-third of
Pinnacol’s assets, then Pinnacol might be unable
to cover unforeseen emergencies and remain
financially solid enough to keep its rates low.
Over the past four years, Pinnacol has reduced
premiums 42 percent. Ross told the Post
that only seven other states have lower premium
rates than Colorado’s.
The Post today, in an editorial
headlined, “Strong-arm tactics by lawmakers out
of line,” said that the JBC is playing a
“high-stakes game of chicken” and that it should
“hit the brakes—and hit them hard.”
http://www.denverpost.com/editorials/ci_12059268
According to the Post, Senate Majority
Leader Brandon Shaffer (D-Longmont) is crafting
a bill that would put Pinnacol under the state’s
umbrella and allow it to use Pinnacol’s
reserves.
In 1915, the Colorado General Assembly passed
the Workers’ Compensation Act and created a
workers’ compensation agency, which has evolved
over the years and under different names (the
last one being the Colorado Compensation
Insurance Authority) into Pinnacol as the
quasi-governmental agency that is a “provider of
last resort” of workers’ compensation insurance
to businesses.
In 2004, Pinnacol reached its surplus goal. In
2005, for the first time in 23 years, Pinnacol
was able to distribute general dividends to its
customers. In the period 2005-2008, Pinnacol
returned $227 million in dividends to its
customers. Pinnacol now provides just under
two-thirds of the workers’ compensation
insurance in Colorado and insures 58,000
companies. For more on Pinnacol, click on:
http://www.pinnacol.com/
CACI offers its members a so-called affinity
program that allows them to obtain workers’
compensation policies from Pinnacol. A number
of local chambers and trade associations also
offer their members a similar benefit with
Pinnacol.
For news coverage this week by The Denver
Post of the JBC’s action as it concerns
Pinnacol and higher education, click on:
http://www.denverpost.com/legislature/ci_12059682
http://www.denverpost.com/legislature/ci_12060222
http://www.denverpost.com/legislature/ci_12060220
http://www.denverpost.com/legislature/ci_12050887
To fully understand the JBC’s action, CACI
members this snowy weekend may wish to watch the
1972 movie, “The Great Northfield Minnesota
Raid,” starring Robert Duvall as Jesse James and
Cliff Robertson as Cole Younger.
JBC Mulls Idea that Legislature Could Raise
Revenue by Eliminating Tax Credits and
Exemptions
Also on Wednesday, the JBC was told by its
staffers that the legislature might have the
authority under a recent Colorado Supreme Court
decision to raise revenue by eliminating tax
credits and exemptions. On March 16th, the
Court upheld a 2007 law that froze property-tax
rates.
Under TABOR, state and local lawmakers have to
obtain voter approval to raise taxes. The JBC
staff said that the Court ruling clarifies that
the legislature doesn’t need such approval to
eliminate tax credits and exemptions provided
that the additional revenue doesn’t exceed TABOR
revenue limits.
The staff submitted a long list of exemptions
and credits, some of which are very important to
the business community. One is a sales-tax
exemption for which CACI lobbied that exempts
components and items that are incorporated into
manufactured products. For the Post’s
coverage of this proposal, click on:
http://www.denverpost.com/legislature/ci_12050887
The JBC, however, has not yet put the list up on
its Web site:
http://www.state.co.us/gov_dir/leg_dir/jbc/various2.htm
Senate Passes Bill to Reduce Employers’
Surcharge for Two Special Workers’ Comp Funds
SB-37 passed the Senate on Third Reading
Tuesday, having been debated and amended on the
Senate Floor Monday during Second Reading. The
bill, sponsored by Senator Mike Kopp
(R-Littleton) and supported by CACI, now goes to
the House for consideration, where its sponsor
is Representative Frank McNulty (R-Highlands
Ranch).
SB-37 would reduce the surcharge that employers
pay on their workers’ compensation insurance
premiums to replenish two workers’ compensation
funds--
the Subsequent Injury Fund and the Major Medical
Insurance Fund, which are explained in greater
detail below.
The bill is projected to save the business
community $10 million in fiscal year 2010-2011.
The bill’s second Fiscal Note, issued March 16th
after the Committee’s action, states that timing
differences, because of the effective date of
the bill and the annual setting of the
surcharge, the revenue received in 2009-2010
will be equal to the projected amount of claims
for the following fiscal year, which is
estimated to be $13 million. Consequently,
there would be no savings to businesses in
fiscal year 2009-2010.
Senator Moe Keller (D-Wheat Ridge), who chairs
the Joint Budget Committee and who supported the
bill, said SB-37 was the only bill that the
legislature will consider this session that will
lower a fee or tax, according to The Denver
Post.
The introduced bill would have terminated the
requirement that the two funds attain actuarial
soundness—which means that they would have to
have enough money to pay all current and future
benefits--and would have removed the surcharge.
When the money in the funds ran out about
2029-2030, the General Fund would then have been
required to pay the benefits and administrative
costs, which would have totaled $212.5 million
by 2066-2067. Eliminating the surcharge would
have saved the business community $33 million in
fiscal year 2009-2010, which begins July 1st,
and $35 million in fiscal year 2010-2011. Over
these fiscal years and three more, the total
would be $180.8 million.
Instead, the Senate Veterans and Military
Affairs Committee on February 9th adopted a
“strike below” amendment by a unanimous,
bipartisan 5-0 vote to require employers to
continue to pay a surcharge but on a
“pay-as-you-go” basis. Both funds would be
required to maintain balances as determined by
the director of the Workers’ Compensation
Division that exceed the projected amount of
claims payments to the injured workers in the
following year.
Loren Furman, CACI Vice President of
Governmental Affairs, spoke in support of the
introduced version of SB-37 before the Senate
Veterans and Military Affairs Committee.
These two special-purpose fund were first raided
by the legislature in 2002 to balance the state
budget following the 2001-2002 recession. At
that time, they were within two months of being
actuarially sound, which would have ended the
surcharge, when the legislature swept out $170
million to help balance the General Fund, and
that amount was never repaid.
According to the bill’s original Fiscal Note,
under the current system the funds should be
“actuarially sufficient” by fiscal year
2012-2013. And the last year that the funds
would pay benefits is estimated to be 2067.
Governor Bill Ritter earlier this year, however,
proposed taking
$118.7 million from these two funds
to help balance the state’s budget for this and
the next fiscal year.
Clearly, the existing law that mandates that
employers pay into these two funds until they
are actuarially sound has allowed Colorado State
Government to collect too much money because
twice within this decade the legislature has
raided, or will raid, the funds to help balance
the state budget. In effect, these two funds
have become a “rainy day” fund for the General
Assembly to tap into during an economic
downturn. Senator Kopp has been quoted in the
news media as calling the two funds “the
legislature’s piggy bank” and a “slush fund.”
SB-37 would remove that temptation from the
legislature in the future. Despite the bill’s
bipartisan progress to date, the practical
political question remains as to whether or not
the legislature will be willing to give up this
potential source of cash to help balance the
General Fund in the future.
The Subsequent Injury Fund was created in 1945
to assist employers who hired someone injured at
a prior job—particularly veterans wounded in
WWII--and who then suffered a new injury and
became permanently disabled. The benefits are
not available for a claimant injured after July
1, 1993, and for occupational diseases diagnosed
after April 1, 1994. Established in 1965, the
Major Medical Insurance Fund was intended to
help employers pay the costs of medically
catastrophic injuries incurred before July 1,
1981. The two funds still pay claims to 684
workers, according to an article in The Rocky
Mountain News on February 10th.
A surcharge is assessed on insurance companies
based on the value of premiums paid by
businesses on their workers’ compensation
policies in Colorado. The current level of the
surcharge is 3.818 percent, and the funds are
used for four purposes in amounts determined by
the director of the Division of Workers’
Compensation of the Colorado Department of Labor
and Employment:
-
Subsequent Injury Fund,
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Major Medical Insurance Fund,
-
Workers compensation cost containment, and
-
Workers’ Compensation Division.
SB-37 would only affect the amount of the
revenue from the surcharge that goes to the
Subsequent Injury Fund and the Major Medical
Insurance Fund. The surcharge rate is set
annually in May and takes effect in July.
Bill to Phase Out Business Personal Property Tax
Stuck in Limbo on Tie Vote in Senate
Appropriations Committee
This morning, the Senate Appropriations
Committee voted on an amended SB-85, and the
result was a five-to-five tie. The bill is
sponsored by Senator Mark Scheffel (R-Parker).
CACI supports the amended bill because it now
includes the centrally assessed companies, which
were excluded from the introduced bill.
Two Democratic Senators—Suzanne Williams
(Aurora) and Paul Sandoval (Denver)--voted in
favor of the bill, while one Republican
Senator—Al White (Hayden) who is a member of the
Joint Budget Committee (JBC)—voted against it.
The other Republican senators voted for the bill
and the other Democratic senators voted against
it.
Because of the JBC’s central role in the
budget-making process, members of the JBC
usually stand united on policy despite their
party affiliation, especially when the state is
facing a fiscal crisis.
The tie vote means the bill is technically still
alive, and the Committee Chair, Senator Abel
Tapia (D-Pueblo), could bring the bill up for
another vote. Senator Tapia also is a member of
the Joint Budget Committee. The Committee’s
Vice Chair, Senator Moe Keller (D-Wheat Ridge),
is the JBC Chair.
SB-85, as introduced, would have created an
18-year phase-out, beginning in 2009, of the tax
that is assessed at the local government level,
but it would have exempted state-assessed
companies. The tax is estimated to be about
$800 million annually.
The Committee first approved an amendment that
includes the centrally-assessed companies in the
exemption, moves the start of the phase-out to
2011 and includes a new phase-out schedule. The
new schedule begins with a one percent phase-out
for 2011 and the next three years. The
percentage increases (3, 4, 7, 11, 18, 29, 47
and 76) in four-year steps until 2047 when it is
fully phased in.
Senator Scheffel has discussed his bill with the
CACI Tax Council and separately with members of
the Tax Council who represent the centrally
assessed companies. CACI worked with Senator
Scheffel to ensure that the centrally assessed
companies are treated fairly.
CACI’s research has found that the top 100
companies in Colorado pay about 46 percent of
the business personal property tax, and the
centrally-assessed companies fall into this
category. Although CACI has long called for the
elimination of the tax, CACI also traditionally
opposes bills that favor one segment of the
business community over another.
A major concern of legislators, however, is the
amount of money that State Government would need
to “backfill,” as required under the state
school finance law, to local schools for the
revenue that they would lose from the tax if it
were phased out. The Fiscal Note for the
introduced bill projects that the State would
have to allocate $1.35 million for backfill in
fiscal year 2009-2010 and an increasing amount
in following years, rising to $202 million when
the exemption is fully phased in 2027.
Working with CACI Vice President of Governmental
Affairs Loren Furman and CACI Contract Lobbyist
Larry Hudson on this bill are the following CACI
members: AT&T, Holland and Hart, Tomlinson &
Associates, Qwest, Intermountain Corporate
Affairs, Union Pacific, Colorado Petroleum
association, Tri-State Generation &
Transmission, PriceWaterhouseCoopers, Verizon,
Silverstein & Pomerantz, and Xcel Energy.
Successor to Representative Anne McGihon Sworn
in Monday to Represent House District 3
On Monday, Daniel Kagan, 56, Cherry Hills
Village, was sworn in by House Speaker Terrance
Carroll (D-Denver) to replace Representative
Anne McGihon (D-Denver) whose resignation for
career reasons was effective last Friday. Kagan
is an attorney and businessman. Speaker Carroll
named Kagan to the House Health and Human
Services Committee and the Legal Services
Committee. For more information on Kagan, click
on:
http://www.denverpost.com/legislature/ci_12033176
http://denverdemocrats.net/node/3212
Upcoming CACI Council Meetings
On Tuesday, April 7th, the Governmental
Affairs Council will meet.
NOTE:
CACI councils meet at 12 Noon in the Conference
Room at the CACI Office. Information about
council meetings and agendas can be accessed on
the CACI Web site. If you, as a CACI member,
are not yet a member of these councils and want
to join, please e-mail Misty Fox at
mfox@COchamber.com
For More Information on Legislation . . .
CACI members with questions about legislation
that CACI opposes or supports should contact
Chuck Berry, CACI President, at 303.866.9652
or e-mail him at
cberry@COchamber.com
Questions pertaining to health-care bills should
be directed to Ralph Pollock, Chair of the CACI
HealthCare Council, at 303.866.9657 or via
e-mail at
ralph@apaccess.com |
