In Scandal’s Wake, Assembly Backs Away

After building a strong impeachment case against Insurance Commissioner Chuck Quackenbush and forcing him to resign this summer, the California Assembly has failed in the closing days of the session to approve reform legislation born out of the scandal.

The main reason for the legislative paralysis, several frustrated lawmakers contend, is an overriding fear among members that reforms are a “slippery slope” that could eventually limit their own ability to raise campaign funds.

Thus, having chastised Quackenbush for political greed, the state lawmakers now seem to favor sticking to the status quo. The inaction by the lower house threatens to tarnish one of its finer moments, the series of bipartisan, thorough and tough oversight hearings it held probing the Quackenbush matter.

The latest setback came late Friday when defections in the Assembly’s majority Democratic ranks--in some cases by members who recently received large contributions from insurance companies--forced the Assembly leadership to withdraw consideration of a bill that would restrict campaign contributions to candidates for commissioner. The bill, SB 953, by state Sen. Jackie Speier (D-Hillsborough), would limit contributions from insurers who have regulatory business pending before the commissioner to $250 for a 12-month period before and after the regulatory action.

Several other states, including Washington, have even stricter limits, which consistently have been ruled constitutional by federal courts with regard to regulatory agencies.

With time running out in this year’s session, the bill is expected to be resubmitted before the Assembly today but will almost certainly lose unless there are some last-minute changes of mind.

The Legislature already has killed several bills to make insurance commissioner an appointed post and to release to the public confidential “market conduct surveys” of insurance claims settlement practices conducted by the Department of Insurance. A Senate bill that would extend by one year the statute of limitations on insurance claims from the 1994 Northridge earthquake is the only Quackenbush-related measure to survive in the Legislature.

In his six years in office, Quackenbush received more than $8 million in contributions from the industry he regulated. Quackenbush diverted $565,000 of the money to his wife’s failed 1998 state Senate campaign. The Quackenbush couple then used the money to pay off a mortgage on their family home and even paid themselves $52,000 interest in the transaction.

Under California’s current no-limit campaign laws, all of these actions are technically legal although, as one legislator put it, “that doesn’t make them right.”

But while the insurance industry was most generous to its chief regulator, it also has consistently paid out millions of dollars to the campaigns of other state elected officials.

State campaign disclosure records show that several key Democratic members opposing the Speier bill have received thousands of dollars in contributions from insurers in recent months.

For example, Assemblyman Thomas Calderon (D-Montebello), an active participant in the Quackenbush hearings who was named this month as new chairman of the Insurance Committee, received $50,421 between January and July from 22 insurance companies. Other Democratic recipients of significant insurance company contributions include Dennis Cardoza (D-Merced) and Edward Vincent (D-Inglewood).

Meanwhile, GOP legislators, who have historically benefited most from insurance company largess, say they are against the measure because they want to see the insurance commissioner appointed rather than elected, as was the case before 1990.

This is a cause favored strongly, and according to reports filed with the secretary of state, generously by the insurance industry.

In June alone, records show that the Republican political action committee, managed by minority leader Scott Baugh (R-Huntington Beach), received a total of $8,500 from three insurance industry lobby groups.

As a result of Democratic defections late Friday night, floor leader Kevin Shelley (D-San Francisco) found himself at least six votes short of the majority 41 votes needed to pass the reform bill. Democrats hold 46 seats in the Assembly and can usually count on one independent member for support. Support among the 32 Republican members appeared to be negligible.

“Some people don’t get it,” said Assembly majority leader Shelley. “We just went through months of crisis where I think the public’s faith in our state institutions was shaken because of actual or perceived corruption in the insurance commissioner’s office. If there is any office that needs reform, it is this one.”

To be fair, not all of the opposition to the Speier bill comes from legislators who have received large amounts from the insurance industry.

“I’ve never gotten a dollar from insurance companies,” said Carole Migden (D-San Francisco), chairwoman of the powerful Appropriations Committee.

State records show that on June 28, Migden did receive a $1,000 contribution from the California Assn. of Insurance and Financial Advisors but that she had not received any other significant contributions from the insurance industry between January and July.

Migden said she opposes the Speier bill because “I believe it singles out the insurance commissioner and because, frankly, I think that campaign reform should be tied to public financing of campaigns so that humble, unwealthy individuals such as myself can run for office.”

Underlining many legislators’ fears, Shelley said, is the concern that if the public gets a taste of campaign finance restrictions involving one office, it could spread like a virus into their own political turf. “Some people are using the slippery slope argument” to fight against reform, he said.

Because it was amended in the Assembly, the bill must also win approval in the Senate, where its prospects are better, mainly because it is strongly supported by Senate President Pro Tem John Burton (D-San Francisco).

In the Assembly, Speaker Bob Hertzberg (D-Sherman Oaks) intervened to get the bill out of Appropriations, where it appeared ready to die last week.

“I think that this is a necessary reform so we don’t have what happened to the insurance commissioner again,” Hertzberg said. “This bill is clearly a response to what happened with Quackenbush.”

But in an interview, Hertzberg said that while he supports the bill, he will not use the power of his office to demand that fellow Democrats join him in the floor vote. “Hertzberg basically told members to vote their conscience,” said one legislator.

Several strong supporters of the bill in the Assembly, including Sheila Kuehl (D-Santa Monica), said they fear failure to act on the lessons learned from the Quackenbush scandal will reverse much of the good public relations won by the Assembly in three months of oversight hearings.

The hearings, which began in April and featured 42 witnesses, won praise from both sides of the political aisle and from other branches of state and federal government.