EDITORIAL: Privatize the State Compensation Insurance Fund

Jan. 9--The Los Angeles Times recently published a scathing article about claims of excessive executive salaries and nepotism at the State Fund, a quasi-governmental agency that is one of the largest providers of workers' compensation coverage in the state.

At first glance the story seemed like business as usual: more waste, fraud and abuse of taxpayer money. A deeper read actually suggests a less serious problem.

But it is still time for the state to consider the very future of this agency that's spent much of its history engulfed in controversy.

As the Times reported, salaries for seven executives at the State Fund exceeded $500,000 annually, making them some of the highest-paid public employees in California. By contrast, the governor gets paid $210,000 a year.

Throw in some light claims of nepotism, critics calling the salaries "beyond the pale" and a lawmaker calling for an oversight hearing and you have the makings of a standard Sacramento scandal.

Looking deeper though, we find the salaries are not paid by the government, which lets some air out of the outrage balloon. As far as the nepotism was concerned, one son of the CEO was making $50,400 annually as an underwriter and another son had previously made $16 an hour as an intern.

Inappropriate? Probably, but as far as scandals go, it lacks the criminal investigation that serves as the State Fund-scandal benchmark. It's doesn't even come close the scandals surrounding Ricardo Lara, the state's insurance commissioner. But it does raise a good question about why the State Fund is still attached to the government in any way.

The State Fund is considered quasi-governmental because its board is publicly appointed (it's often a cushy landing spot for former lawmakers and other well-connected types) and because it has a mandate to provide insurance no matter what, a market of last resort.

The State Fund exists because California is a no-fault state where employers must pay workers' comp claims and, in exchange, workers can't sue the employer for fault. Someone needed to insure the previously uninsurable.

But times have changed. There are other options. West Virginia, for example, moved to a competitive market with an assigned-risk pool and it seems to be working fine. And that's a state that was previously dependent on coal mining. In other words, an expensive place to provide coverage.

The State Fund wants to pay its executives like executives in the private market and has asked for waivers from certain civil service requirements. Perhaps it's time to reconsider its quasi-governmental status and privatize this agency, which really wants to be private. This would give lawmakers one less cushy place to go after life in the Legislature, but the state would survive.

Public employee unions would have a fit because State Fund's approximately 4,200 employees are eligible for public pensions, but the state would survive that, too.

Lawmakers would argue that the State Fund's quasi-governmental status makes it subject to scrutiny, like legislative oversight and sunshine laws. But if there's one thing both the Times story and recent history have shown, it's that oversight isn't really happening and if it is, it's not effective.

Maybe it's time give the State Fund its wish and privatize it.

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