One more budget workaround has collapsed in the face of reality.  This time it is the proposed sale of the state compensation fund.

Last summer, the governor convinced state lawmakers that he could raise $1 billion by getting investors to buy some of the business of the century-old State Compensation Insurance Fund.

That idea was one of a handful of creative solutions and accounting maneuvers concocted to balance the $90-billion, recession-wracked spending plan, at least on paper. But the planned sale of part of the State Fund was tied up in court after California Insurance Commissioner Steve Poizner filed a lawsuit contending that a sale could weaken the insurer, raise premiums for thousands of employers and damage an already weak state economy.

“State Fund was set up in the California Constitution for the sole purpose of supporting the workers’ compensation system,” Poizner said. “It’s not there for the purpose of taking out money.” (LAT)

It is interesting to see Poizner bring down one of these gimmicks, but in a way it makes sense.  He is going around demanding accountability and lusting for cuts.  Whereas Arnold is at least nominally begging the feds to save welfare, Poizner would be pretty enthused to really get a chance to take down all aspects of the social safety net.

As Robert pointed out yesterday, this year saw a significant blow to the safety net and the California Dream. Next year brings more challenges, if we do this right, we don’t have to make next year a continuation of this year.

Among the sketchiest of budget solutions passed last month was the plan to sell the State Compensation Insurance Fund for $1 billion dollars.  This would be a perfect plan, if anybody actually wanted to buy it.  But they don’t, and so later this year, there will be this $1 billion dollar hole in the budget, and oh-so-sincere Yacht Party types will assume that it’s just the cause of overspending, or something.

“This isn’t going to happen any time in the next three to four years because there would be one court case, if not many,” said Frank Neuhauser, a University of California, Berkeley, researcher and expert on workers’ compensation. “There’s no money coming from this in the short term that would resolve a budget problem. I think it’s no better than smoke and mirrors.”

The list of problems with the proposed sale is long.

The authorizing bill requires that State Fund’s board of directors agree that assets identified by the state are appropriate to sell. Whether that gives the board veto power is already under dispute, a key point since the board opposes any sale.

The board’s right, by the way, since the only way you could sell off any of the assets of the worker’s compensation insurer of last resort is by selling off low-risk policies to private interests, essentially saddling the SCIF with the worst policies and driving premiums up.  This from the Governor who supposedly “slashed” worker’s comp.

Meanwhile, there’s this inconvenient set of facts:

A major question is whether the state even owns State Fund assets. Policyholders likely would argue that the assets belong to them, not the state.

When Colorado lawmakers this year attempted to take $500 million from its workers’ compensation fund, Colorado’s attorney general concluded the money was not the state’s to take and would incur extensive litigation. A Utah judge in 2005 ruled that Utah likewise had no ownership in its workers’ compensation fund “other than as a policyholder.”

“I don’t see where that money is the state’s to take,” said Neuhauser, the UC Berkeley workers’ compensation expert. “When the reserves are more than necessary, they are given back as dividends. I’ve always thought of that as the employers’ money and never understood how it’s possible the state could sell it.”

We see here, once again, the practice of breaking the law to balance the budget.  Because the Yacht Party refuses to properly fund government, and because the current rules allow them a minority veto, the only avenues left are raiding special funds and illegal or unworkable gimmicks.  It’s a budget built of straw.

(By the way, John Chiang, attributing the problem to “irresponsible spending” doesn’t really help matters)

The massive cuts to fundamental public services are working a massive transfer of wealth from the less wealthy to the more wealthy. I don’t think this is news to many readers here, but being able to provide a concrete example or two helps win the watercooler wars.  

In Part I, I talked about how slower fire response times will in effect create a “tax” that will disproportionately impact lower earners.

In this Part II, I will discuss how the privatization of State Compensation Insurance Fund will disproportionately impact small businesses.

More on the flip.

One gimmicky aspect of the recent budget disaster was the sale of State Compensation Insurance Fund’s book of business. (ABX4 12)

The California Labor Code requires that all employers carry workers compensation insurance. (Lab. Code §3700.) There are a few very tiny loopholes. The workers compensation system provides for no-fault coverage for on-the-job injuries in exchange for foregoing regular civil suits in tort. Workers compensation benefits include wage replacement, medical treatment[1], job retraining, among others. The system includes its own tribunals which relax the formal rules of evidence and procedure that exist in normal courts.

In the parlance of the ongoing health care debate in Washington, there is a “mandate” on workers compensation. Every employer has to have it. If you look, you’ll see that your home-owners insurance policy covers this in case someone doing work at your house is deemed an employee.

And in the parlance of that same debate, there exists a “public option” (at least for now). That public option is the State Compensation Insurance Fund, not-so lovingly referred to as “SCIF.”

SCIF was established in 1914 to provide a non-profit “public enterprise” insurance agency for workers compensation. The “public option” as recently as a few years ago provided roughly half of the workers compensation policies in California, but now appears to have dwindled to about 25%. Other insurers have fled the market or priced themselves out of most businesses’ range, even after reform.

Now SCIF probably isn’t something we want to hold up as a shining example of “public options.” It has been riddled with massive incidents of fraud lately (I would say, so have private companies, but who would hear that?).

So how would this work? [2] Would the best accounts be sold off leaving SCIF as a high-cost, high-risk vehicle that would streak towards insolvency?

From the Sacramento Business Journal.

Fundamentally transforming State Fund would be a “huge public policy blunder” and “extraordinarily ill advised,” said Steve Young, senior vice president and general counsel for Insurance Brokers and Agents of the West, a trade association. “I really believe it would be catastrophic for California consumers to fundamentally alter the safeguarding role that State Fund has played.”

In other words, we might find ourselves in a workers’ comp cost spiral that the “public option” won’t be there to cushion.

State Fund is often called the insurer of last resort. It brings “a level of honesty and true competition to the workers’ comp market,” Young said, though there’s no statutory mandate for the nonprofit to accept all applicants. The insurer was there for employers a decade ago when other insurance companies fled the market or went under during a systemwide crisis.

Of course, this won’t affect large businesses. Businesses with enough capital can simply self-insure (Lab. Code § 3700(b)) or pay the higher rate. Businesses that can’t afford the coverage will either resort to tricks like changing employees to sham “independent contractors” which could land them criminal penalties, or they may just have to go out of business.

As a result, competition will be eliminated by killing off small businesses making the conservatives scare tactic about businesses leaving California to become a self-fulfilling prophecy.

[1] In conversations I’ve had with experts on the SB 840 project, they told me that workers’ compensation was not included. I wonder how much savings there would be if everyone had medical treatment regardless of employment and that cost was removed from the comp system, where it has to be the hugest component. It seems to me it would not only increase employee mobility, but entrepreneurialism–you know, capitalism. Conservatives actually hate capitalism and competition and want mercantilism, but that’s for another diary.

[2] It won’t. Mark. My. Words. In the next budget go-round, they will have to address the shortfall from this sale ridiculously marked at over $1b.

When the Governor looks around and sees a mortgage crisis, a potential $10 billion dollar shortfall in the state budget, and failures to deal with pressing economic problems and instead push the problem off to the next generation, he always falls back on worker’s compensation reform.  This was the centerpiece of his economic agenda upon coming into office, it’s what he always touts as the first step on getting California business moving again.

And it was based on discrimination.

A state appeals court ruled Monday that a 76-year-old Sacramento woman can’t have her permanent disability benefits reduced because of her age.

The decision by the 3rd District Court of Appeal in Sacramento represents a small but significant victory for injured workers who argued for years that their benefits have been slashed by Gov. Arnold Schwarzenegger’s overhaul of the workers’ compensation system three years ago.

For the first time, the court said the injured workers are protected by the state’s anti-discrimination laws. In this case, insurers and doctors can’t use a worker’s age, race or gender in determining permanent disability awards.

The road to economic solvency for Arnold Schwarzenegger was based on this; trying to take money from the permanently disabled because of their age or race or gender.  We should all feel a little bit ashamed.

Now the job of the legislature is to permanently fix this injustice to put it in legal working order.  Frank Russo has a lot more, but here’s a taste:

Yesterday’s decision by three judges of the California Court of Appeals that the so-called “reform” of workers’ compensation laws–the law that Schwarzenegger demanded and the legislature enacted in 2004–cannot be used when it leads to discrimination based on gender or race is just the latest example of how badly that law was written. The legislature bought a pig in a poke when they were stampeded into adopting at a 3 a.m. committee hearing followed by floor votes of a complicated 75 page bill which almost none of them had read–or really considered.

Workers have been paying for this ever since.

This is at least the seventh or eighth cover story (and I’m not even counting the muscle mags) on the supposed “moderate centrism” of Arnold Schwarzenegger, which is apparently something to be deified.  Now it’s of course true that this “centrism” is broadly defined as implementing the wishes of Democrats and the overwhelming majority of Americans without the help of Republican votes at all, while still calling yourself a Republican, setting you apart from those dirty fucking hippie Democrats.  I can give you a wide range of Democrats at the state level implementing the same kinds of policies (Eliot Spitzer, Brian Schweitzer, Martin O’Malley, Bill Richardson, John Lynch), but they’re mean Democrats and not very serious Republicans so they don’t count and get magazine covers.  But there’s something more here.

What exactly has Arnold Schwarzenegger done in 2007 to deserve this hero worship?  Sure, the vagaries of the California Legislature ensures that he won’t have many bills to sign until September.  But here’s the 2007 record:

In the past several months, the governor has:

• added 53,000 beds to our prisons, to the extent that the state government is paying more to incarcerate people than it does on higher education…

• refused to do anything about sentencing guidelines which have put us into such a mess that we have these overstuffed prisons in the first place and the nation’s highest recidivism rate (he’s also refused to fund a voter-approved drug treatment program that would alleviate this)…

• eliminated $1.3 billion in public transit funds so he won’t have to raise taxes to balance the budget, preferring to continue to put bond issues on the state credit card to keep the budget artificially solvent until he gets to leave and it all crashes down for the next governor…

• tried to cut funding for the poor and the elderly in his mean-spirited budget proposal, and is deliberately fudging the numbers to make the state budget look better than it is…

• vowed to privatize the lottery to get a short-term cash infusion, again risking long-term loss of revenue…

• formulated a health care plan that’s so completely ridiculous and unworkable that nobody, Democrat or Republican, will carry it into the Legislature…

• appointed every lackey he knows to state oversight boards, including his personal dentist and personal chiropractor, even though they have no experience in the boards on which they now sit…

This is conveniently ignored by all of these magazine cover stories, which focus on those “big issues” that the Schwarzenegger team pushes with all the might of his PR machine.  But unlike the environment and stem cell research, economic issues are never uttered by those praising Arnold’s “centrism.”  That’s because he’s far to the right on all of those issues.

“I was sent to Sacramento to protect businesses, and that’s why the first thing I did when I came into office was, we reformed workers’ compensation,” Schwarzenegger said in Chico the other day, adding, “We went in there and we reformed the system, but a radical reform. And now, as I have said, we are putting $14 billion back into the economy because we reduced the workers’ comp costs by 50 percent, and like I said, another 16 percent is coming.”

Before the governor spoke, Insurance Commissioner Steve Poizner recommended another 14 percent cut in premiums charged by workers’ comp insurers — substantially more than the Workers’ Compensation Insurance Rating Bureau had recommended. As Schwarzenegger said, employers’ overhead for workers’ comp has been reduced by at least $14 billion a year, even as their insurers’ profits have soared […]

The coalition seeking a rollback has distributed what it calls “horror stories” about disabled workers to bolster its case, but so far has been unable to generate much public or media interest — or even much traction for legislative change.

Had Democrat Phil Angelides ousted Schwarzenegger in last year’s election, one of his first acts would have been to roll back the much-disputed regulations. But with Schwarzenegger re-elected in a landslide, the coalition’s hopes now rest on administration studies being conducted on the effects of the reforms. So far, they have confirmed critics’ complaints about sharp reductions in disability ratings and compensation levels. But whether they will lead to change is problematic.

When he vetoed a workers’ comp benefit increase last year, Schwarzenegger said he is “committed to making any changes necessary to ensure that injured workers unfairly impacted by workers’ comp reform receive appropriate medical treatment and indemnity benefits.” But every time he makes a speech crowing about the multibillion-dollar savings to employers, he becomes more wedded to the status quo.

“I was sent to Sacramento to protect business,” first of all, should be on the lips of every Democratic legislator in the state.  This is what Schwarzenegger is all about.  This is his core constituency.  And he will protect it against those unfortunates who get injured on the job and are seeing their protections diminished severely and unjustly.  That’s because we have a national media that’s more concerned about painting images of “the moderate action hero compromiser” instead of telling the truth about the cruelty of his economic positions.

I’m not surprised that the national media can be so easily bamboozled by Schwarzenegger’s purported centrism; heck, even national bloggers have been fooled.  What does surprise me, and sadden me, is that the Democratic leadership in this state has decided not to push back against this now-ingrained narrative.  There’s an opening so wide you can drive one of Arnold’s Hummers through it.  The Governor seems to understand that progressive ideas are popular, and has no problem cherry-picking some of them.  But his economic ideas are wildly unpopular, and we need some good old-fashioned populism to put the lie to this government-by-magazine-cover nonsense.

So, this seems to becoming a regular habit for me.  I hope it’s useful.  So teasers from today’s scouring of the Internets: LAT: Pombo must go, Schwarzenegger undermining AB32 already, Workers’ Comp, the ACLU

• The LA Times says that Pombo is an embarassment:
  

  Richard W. Pombo (R-Tracy), a seven-term congressman who appears to have a vendetta against the environment, has tried repeatedly to eviscerate the Endangered Species Act. He has proposed selling federal wilderness for a pittance to mining interests. His latest bill wouldn’t just open up vast stretches of the coast to drilling, it would slash the royalties that companies must pay for shale-oil leases, potentially costing taxpayers billions of dollars. And then there’s his tarnished ethics record, which earned him a spot on a watchdog group’s list of the 13 most corrupt members of Congress last year. … With congressmen like these, California’s reputation for eccentricity is unlikely to suffer. All the same, it’s the kind of behavior the state could do without. Better to have our wackiness expressed in, say, our vegan cuisine, where it can do less harm.(LAT 10/17/06)

  Vegan cuisine wacky? Well, I put forward that vegan food is far less wacky than the congressman from CA-11.  The editorial also called out Duncan Hunter (R, CA-52) for the Santa Rosa Island affair, the lemon chicken incident, and generally being a ninny.

• Arnold is working at undercutting the global warming emissions law already.
  

  Assembly Speaker Fabian Núñez and some environmental groups charged Monday that an executive order Gov. Arnold Schwarzenegger plans to sign today undermines an agreement the governor struck with Democrats on the state’s landmark global warming law.
  {snip}
  Núñez said that the executive order gives more power to the executive branch than the law calls for and that the governor’s emphasis on a market-based approach to lowering greenhouse gas emissions ignored other aspects of the law. He suggested the governor was reinterpreting the law based on proposals he had suggested to lawmakers during negotiations over the legislation this year but that had been rejected by the Legislature. (SF Chron 10/17/06)

  This is the man we are supposed to trust with our environment?

• The worker’s comp program that Arnold is so proud of? Yes, it reduced insurance premiums.  But it is best dubbed “compensation”, because it forgot about the workers.  The LAT says that workers have been hurt by the current workers’ comp scheme
• The Pacific Justice Institute opened an office in the OC. Dana Parsons at the LAT thinks the ACLU is cowering.
  

  You probably wonder how the ACLU is taking all this.

  I put in a call to them Monday afternoon to assess the state of their trembling, but didn’t hear back by the time I was finishing this column.

  You want my guess as to what they’re doing?

  Once they got wind that the Pacific Justice Institute was around, they began packing up their files, donning disguises and high-tailing it out of town.

  First of all, the ACLU isn’t about being conservative or liberal. Ask Bob Barr.  Attacking the ACLU only makes one look ridiculous (see Doolittle, J).