CO Senator's Remarks On Bill 281

Denver, CO (CompNewsNetwork) - Senate Bill 281, passed on third reading and final passage in the Senate. This bill allowed the Joint Budget Committee to transfer $500 million from Pinnacol Assurance's surplus to the General Fund. This means that Colorado will not have to cut $300 million from Higher Education, and will convene an interim committee to study the best means of providing fair workers' compensation in Colorado.

These are the remarks Sen. Brandon Shaffer made on the floor:

“I move Senate Bill 09-281 on Third Reading and Final Passsage and request an ‘Aye' vote.

Members, this is one of two Pinnacol Assurance bills moving through the system.

This bill does essentially four things:  (1) it restructures the governance of Pinnacol so its management rests with its board of directors, not its CEO; (2) it requires Pinnacol to issue a dividend equal to 5% of its surplus to policyholders with 50 or fewer employees; (3) it calls for a performance audit of Pinnacol; and (4) it convenes an interim committee to study Pinnacol's operations.

It is important to note that Pinnacol is a Division of the State of Colorado. It pays no taxes, and its Board of Directors is appointed by the Governor and confirmed by the Senate.  If Pinnacol did pay taxes, based on conservative estimates, the state would receive approximately $40 million per year.

Pinnacol's history dates back to 1915 when the first workers compensation laws were passed in Colorado.  At that time it was simply a state fund controlled by the “Industrial Commission” and was intended to offer workers compensation coverage to high risk industries.

It wasn't until 2002 that the legislature changed the name of the state fund to Pinnacol Assurance and authorized the transfer of assets out of the state treasury into the control of Pinnacol's board.  On the basis of the legislation passed in 2002, Pinnacol and, now the Attorney General, claim that Pinnacol is a private company and their assets do not belong to the state.

However, Colorado's Constitution contains several prohibitions against special legislation designed to benefit private businesses.  Specifically:

Article V, Section 25:  ‘The general assembly shall not pass local or special laws … granting to any corporation, association or individual any special or exclusive privilege, immunity or franchise whatsoever;' and

Article V, Section 34:  ‘No appropriation shall be made for charitable, industrial, educational or benevolent purposes to any person, corporation or community not under the absolute control of the state.'

The only way the transfers that occurred as a result of the 2002 legislation could be considered constitutional is if Pinnacol was then, and remains now, a division of the state.  Otherwise, those transfers were, and remain, unconstitutional.

Of course, the opinion issued by the Attorney General's office didn't address this argument.  Nor did it address the issue of Pinnacol's lack of standing to initiate a lawsuit against the state.  One division of government cannot sue another.

Indeed, the Attorney General took it upon himself to intervene in a critical political discussion to inform us of his ‘opinion.'  However, he never actually sent the sponsors of the legislation a copy of his memo.

I learned of his memo from Tim Hoover, a reporter for the Denver Post, who contacted me late Friday afternoon to get my reactions to the AG's opinion.  I told him I had not yet seen it, and asked if he might be willing to forward a copy to me.  He did, along with the string of emails by which Mr. Hoover received the memo.  It had been delivered earlier in the day by Mike Saccone, press staff for the Attorney General, with the notation ‘Enjoy.'

The Attorney General is playing high stakes games.  This is demonstrated by his legal analysis, which is long on politics, but short on the law.

Other than missing the two arguments already mentioned related to unconstitutional special legislation and lack of standing, the AG's opinion concludes that policyholders have an express right to the surpluses of Pinnacol Assurance and the state does not have the ability to transfer Pinnacol's massive surplus to higher education.

However, the opinion provides no analysis of the actual contract between Pinnacol Assurance and its policyholders.  I have distributed a copy of this contract to each of you.  There is nothing in it that creates an ownership interest between the policyholder and Pinnacol, nothing that guarantees a dividend, nothing that guarantees a return on investment.  Pinnacol operates as an insurance company, not an investment vehicle.

The bottom line remains the same.  We still have a huge hole in our budget and are in a position where we may need to cut $300 million from higher education.  That is simply unacceptable.

Pinnacol Assurance is a division of the state.  It pays no taxes.  It currently has a reserve account for known losses of over $600 million.  It has a second reserve account for potential losses that may be filed in the future.  In this account there is an additional $600 million - almost twice what private insurance companies carry.  On top of that, Pinnacol is sitting on a surplus of approximately $700 million. 

Based on these numbers, there is absolutely no justification for Pinnacol to increase premiums to policyholders or to claim that the actions of this legislation, or its companion, Senate Bill 09-273 will destabilize Pinnacol's operations.

Pinnacol Assurance is a division of the state.  It pays no taxes and its massive surplus can be better spent on higher education in Colorado.”

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