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Oregon Backlash — Criticism of Governor’s Work Comp Fund Grab

Posted By Administration, Tuesday, March 12, 2019

Oregon Governor Kate Brown — and many in the Oregon Legislature — are desperate to find an answer to the state’s growing PERS pension debt. Brown has proposed raiding Oregon’s quasi-public workers’ compensation corporation, the State Accident and Insurance Fund (SAIF).

Her idea is to grab about $1.4 billion from SAIF’s policyholder surplus. That money will be invested in a different account and the earnings will be used to offset the pension costs of PERS. To make a dent in that debt — Brown and the Legislature — will need that account to bring in about $3 billion by 2021.

As it stands now, Oregon’s PERS system is facing a $26 billion deficit and that deficit is growing. The added debt is increasing costs for schools, municipalities and government agencies.

The SAIF option being considered by the governor was part of a number of suggestions offered in 2017 by a task force Brown set up to explore ways to cut PERS costs. At the time — and while facing reelection — Brown opted to say no to the idea.

Now that — some say — she’s been reelected, the SAIF offer is on the table.

Oregon Republicans and businesses didn’t take long to go on the offensive. One of their criticisms is how Brown has gone about setting this up. The governor’s chief of staff Nik Blosser and her legislative director met with retired insurance executive Pat Kilkenny and Endeavor Capital’s John von Schlegell about ways to reduce PERS unfunded liability.

One of the options discussed is selling SAIF.

Kilkenny — according to Blosser’s notes — introduced the team to TigerRisk Partners. It is an insurance mergers and acquisition specialist. In an email back to the governor’s office, company head Tony Ursano said, “We would love an opportunity to come out to Salem and introduce ourselves, our firm and our preliminary perspectives on SAIF,” he wrote. “I believe we are uniquely positioned to offer the State of Oregon insightful, thoughtful and objective advice about the strategic alternatives available to SAIF.”

Strategic alternatives — as some assume — means, “we’ll buy it.”

Until now neither Brown nor her staff have commented on the proposal. Spokeswoman Kate Kondayen of the governor’s office said Brown is trying to balance ways of addressing the PERS deficit with stabilizing the cost of Oregon’s education system. Kondayen said Brown “has no intention of selling SAIF or taking any action that will weaken SAIF’s strong safety programs or benefits for workers.”

Some in business circles disagree with Kondayen’s assertion that Brown is concerned about the overall debt of PERS. They think Brown just wants to keep pension costs down for schools and what she really wants to avoid is having the $2 billion corporate tax increase — that is likely to be passed in this session of the Legislature — eaten up by PERS costs.

Legislators and the governor want that money to go into classrooms.

Republicans say this is a bad idea for a number of reasons. Oregon business has some of the lowest workers’ compensation rate in the nation because of SAIF’s structure and its surplus. Policyholders have received dividends from the surplus over the last decade and do not want the governor’s grab to affect those dividends.

In 2017 SAIF sold $526 million in premiums. Losses were $393 million. That means SAIF had a $133 million underwriting profit. Investment income came in at $171 million.

As a result, 30% of the premiums shelled out by businesses — some $160 million — was returned to them. At the same time the underwriting profit pumped up the surplus to close to $2 billion.

So the $1.4 billion is quite a hit.

SAIF’s spokeswoman Lauren Cansler said, “Our capital base allows us to do what we do. It provides safety and security for our policyholders and injured workers, and it enables us to keep prices low and service levels high.”

House Republican Leader Carl Wilson of Grants Pass said the Democrats are working a shell game that could — eventually — lead to higher work comp costs and could put workers at risk. “The Governor’s proposed indiscreet confiscation of SAIF’s reserves is a smash and grab, endangering hardworking Oregon wage earners,” he said.

By the way, apparently this is not the first time SAIF’s surplus has been the target of a governor. In the 1980s, then Governor Victor Atiyeh grabbed $81 million from SAIF to balance the state budget after the Legislature failed to do so.

SAIF challenged the decision and class action suits were filed. The Oregon Supreme Court finally got the case and said the taking of the funds was illegal and it ended up — after interest payments and all — costing the state $225 million to repay.

Today, since the law was changed by the Legislature in 1982, the governor — or the Legislature — can tap those funds to “direct legislatively the disposition of any surplus in excess of reserves and surplus deemed actuarially necessary according to recognized insurance principles.”

If Brown and the Legislature decide to take the $1.4 billion, it will no doubt be challenged in court as was a recent decision in Montana when the governor grabbed money from the Montana State Fund to fix a budget hole.

Source link: OregonLive.com

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