State-Run Comp Insurer Assailed

California’s secretive government-run workers’ compensation insurance company came under attack Wednesday for fighting a bill that would force it to open its books to state auditors.

At issue is legislation by the chairwoman of the Senate Insurance Committee to allow the state auditor to review the administration of the State Compensation Insurance Fund and investigate its finances.

“That a state entity -- created specifically to provide insurance as a last resort in the workers’ comp area, that is peopled with state employees and has a board appointed by the governor -- would not be subject to state auditing review, to me, is the height of chutzpah,” said state Sen. Jackie Speier (D-Hillsborough).

But the company -- known as State Fund -- has maintained that it is a private enterprise exempt from most open-government laws. And it pointed out that it was already regulated by the state, like all other insurance firms. It has recently indicated it may consider a compromise.

On Wednesday, State Auditor Elaine Howle and Speier held a news conference to call for passage of Speier’s bill, SB 1452. The senator was the more outspoken, saying fund executives were “arrogant.”

Speier said she was even more irritated to learn that the government-run agency had spent about $180,000 since December 2004 on lobbying to oppose her bill and other legislation.

Speier’s measure would spell out the authority of the state auditor to probe whistle-blower complaints from State Fund’s employees. It also would authorize the auditor to probe the company’s administration and finances, if asked to do so by the Legislature.

State Fund was created by the Legislature nearly a century ago and has ballooned to become the largest workers’ comp carrier in the nation.

The fund sells about 40% of all workers’ comp policies issued in California, worth an estimated $6 billion annually. State Fund currently covers 229,000 California employers -- representing about 1 of every 6 workers in the state -- against the costs of job-related injuries.

Though it is a government agency, State Fund does not operate with public money. However, taxpayers could be on the hook for damages if the company ever becomes financially shaky, Speier warned.

Although its employees are state civil servants, the fund excludes the public from board meetings, declines to make records available to the public and long has argued that it is not subject to reviews by state auditors.

So far, Speier’s bill has received no dissenting vote in the state Senate or the Assembly. On Tuesday, the Assembly Appropriations Committee, with no debate, approved the measure and sent it to the full Assembly for a final vote before a scheduled Aug. 31 adjournment.

State Fund acknowledges that “there is a difference of opinion” about whether the auditor has a right to review the company’s records, said George Miller, State Fund’s lobbyist.

The company is concerned that an auditor’s report or supporting material released to the public could “disrupt the marketplace” by revealing rate-making procedures, which could inadvertently violate antitrust laws, he said.

Faced with bipartisan support for the bill, State Fund in recent days has begun to moderate its opposition to it.

Company spokesman Jim Zilenski said State Fund was seeking a compromise that would allow the state auditor to look at its records, but only if the company could ask lawmakers to keep certain information under wraps.

“We don’t object to the audit. We’re only asking for protection regarding confidential rate making or related competitive information,” he said.

Speier counters that decisions on keeping information confidential should be left to the auditor, not to lawmakers.

For her part, State Auditor Howle contends that the Speier bill merely reinforces the authority she already has to review State Fund’s operations.

“The Legislature should have the ability to oversee State Fund through my office,” she said.

California Insurance Commissioner John Garamendi, who has been in an ongoing legal dispute with State Fund over his ability to regulate the company, said he supported Speier’s calls for audits.

“No state agency should be secret or above the review of the Legislature,” he said.

Gov. Arnold Schwarzenegger has taken no official position on the Speier bill. But spokesman Darrel Ng said the governor “thinks the state auditor has done a fantastic job in the past” and “has a history of supporting initiatives allowing more access into government.”