Burns orchestrated state comp fund privatization amid some concerns

Arizona’s rush to privatize the state workers’ compensation fund was orchestrated by Senate President Bob Burns after mulling the idea for years, but some Republican lawmakers resisted the change because they said the real motivation was to find money for the state.

Gov. Jan Brewer signed a bill May 7 that will dissolve SCF Arizona, making Arizona the latest in a string of states to privatize the state workers’ compensation fund and signaling the end of SCF Arizona’s 85-year run as a state agency.

The law also requires legislators to establish a procedure to shift the agency’s $3 billion in assets to a new — and so far nonexistent — private mutual insurer by 2013. The bill, S1045, as originally written, would have ended SCF Arizona in 2011, but it was amended on the House floor to delay the transition to a private company by a year.

The move cuts what few ties SCF Arizona still has to state government; the Arizona Legislature during the past several decades gradually loosened its grip on the agency. At one point, the agency filed a lawsuit against the state after lawmakers tried to force the compensation fund to purchase state-owned buildings.

“There wasn’t a lot left to be called a state agency, other than the appointed board members,” said Rick Jones, SCF Arizona’s senior vice president of sales and business. “The company’s virtually been acting as a mutual insurance company for many years.”

The bill to privatize SCF Arizona was hurried through the legislative process as lawmakers worked to wrap up the session. The measure was introduced as a strike-everything amendment to S1045 in a House Commerce Committee meeting April 7. Three weeks later, it was sitting on the governor’s desk, and it was signed into law a week after that.

“It came up late and got pushed through quickly. I think it’s a complicated issue that needed some more time,” said House Majority Whip Andy Tobin, a Republican from Paulden.

The bill was a pet project for Burns, who stopped the progress of a House bill that would have extended SCF Arizona for another 10 years and instead crafted a bill to wipe the agency from the state’s books.

“It’s critical that we get rid of the name ‘state comp fund,’ and SCF needs to go away,” he said. “It was a bad structure. It wasn’t set up properly anymore.”

Burns said he’s been mulling the idea of privatizing the fund for several years. This year, the opportunity presented itself: SCF Arizona was due for a hearing to determine whether it should continue to exist.

Technically, all of the state agencies have only temporary authorization to operate. They must be re-approved by lawmakers periodically, generally every 10 years.

Burns said he was concerned that Arizona taxpayers could be held responsible to bail out SCF policyholders if the agency ever goes bankrupt.

“Those policyholders would come down to the steps of the Capitol and say, ‘It’s the state comp fund. You have an obligation to make us whole or keep us from being harmed.’ That was a risk that we shouldn’t be exposed to,” Burns said.

But Rep. Bill Konopnicki, a Republican from Safford, said the privatization effort is more about trying to wring some money out of the compensation fund to help the state balance its budget. He voted against the bill April 29, when it passed the House by a 37-19 vote. Opposition came from Republicans and Democrats.

Later that day — the last of the legislative session — it won final approval from the Senate on a 26-1 vote.

A provision in the new law requires SCF Arizona to examine its assets and determine if any of them belong to the state. It would then be required to pay the state for those assets before the transition to a private company takes place.

“When you get to the end of the line, the intent is to get money from it. This is all about trying to frisk them for money,” Konopnicki said.

Other lawmakers said they heard the privatization was intended, in part, as a cash grab.
“We’ve done enough damage already through the budget. That just added more fuel to my concerns,” said Rep. Lucy Mason, a Prescott Republican who voted against the bill.

Tobin, who supported the bill, said money wasn’t the reason for privatizing the fund. He said it’s unlikely that any assets controlled by SCF Arizona would be considered property of the state.