Legislature(2003 - 2004)
02/17/2004 01:34 PM Senate L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 276-ALASKA INSURANCE GUARANTY ASSOCIATION
CHAIR CON BUNDE announced SB 276 to be up for consideration and
recapped that a CS had been discussed at the last meeting. An
additional amendment had been proposed that would complete the
changes in the CS.
SENATOR RALPH SEEKINS moved to adopt CSSB 276(L&C), version \H,
as the working document.
CHAIR BUNDE explained that the CS was requested by the
Department of Community and Economic Development (DCED) and
reinserts (on page 4, line 24) its ability to seek loans from
Alaska Industrial Development and Export Authority (AIDEA)
should the guaranty fund need to be filled, again, temporarily.
SENATOR HOLLIS FRENCH maintained his objection to the adoption
of the CS for the reasons he already stated at the last meeting
[2/10/04].
CHAIR BUNDE asked for the roll to be taken. Senators Seekins,
Stevens and Bunde voted yea; Senator French voted nay and CSSB
276(L&C), version \H, was adopted.
SENATOR SEEKINS moved to adopt amendment 1, version\H.1.
23-GS2105\H.1
Bullock
1/13/05
A M E N D M E N T
OFFERED IN THE SENATE BY SENATOR BUNDE
TO: CSSB 276(L&C), Draft Version "H"
Page 5, following line 30:
Insert a new bill section to read:
"* Sec. 4. AS 44.88.080 is amended by adding a new paragraph
to read:
(27) to guarantee loans made to the Alaska
Insurance Guaranty Association (AS 21.80.040), with these
guarantees limited to loans necessary to make the
association financially able to meet cash flow needs up to
a maximum outstanding principal balance at any time of
$30,000,000."
Renumber the following bill section accordingly.
MS. LINDA HALL, Director, Division of Insurance, Department of
Community & Economic Development (DCED) explained that the
amendment adds the second piece of the AIDEA loan guarantee by
taking language from the Alaska Insurance Guarantee Association
(AIGA) statutes and puts it in with the AIDEA statutes, enabling
it to provide the guarantee that is spoken to in the CS.
CHAIR BUNDE announced that amendment 1 was adopted without
objection.
SENATOR FRENCH surmised that the bill now goes from being a
series of assessments on the industry to what is essentially a
funding mechanism through the earnings reserve of the Permanent
Fund.
MS. HALL responded that was her understanding, as well.
SENATOR FRENCH asked if simply going from a 2 percent to a 4
percent assessment would be beneficial to the guaranty fund.
MS. HALL agreed that the assessment increase mechanism would be
simpler, but objections to the resulting increased financial
obligations had been raised.
SENATOR FRENCH noted that he heard objections to the assessment
increase from the self-insured groups that had never paid into
the fund and couldn't ever get a financial benefit from it, an
obviously defensible position.
MS. HALL agreed with Senator French that the majority of
objections she heard also came from self-insureds and joint
insurance arrangements. She admitted that increased costs are
probably distasteful for the employer community and
policyholders at large, although she hadn't received a
significant number of complaints from them.
SENATOR FRENCH noted that the original bill also had a 2 percent
increase on other lines of insurance, but he hadn't heard many
objections from that group. He asked if she had any input from
them.
MS. HALL replied that she hadn't received a specific phone call,
but had heard a couple of general complaints regarding that
particular provision.
SENATOR FRENCH concluded saying he appreciated the work she had
put into creating SB 276. "If there were compromises to be made,
it would have been in that final self-insured group, the group
that would derive no benefit from paying into the Workers Comp
fund, but that's behind us...."
SENATOR SEEKINS asked if self-insureds could argue that they
didn't receive any benefit and weren't involved in the
bankruptcy of the companies and therefore shouldn't be held
responsible with an additional assessment.
MS. HALL replied that that argument could be raised, but it was
an oversimplification to think that Fremont's [Insurance
Company] insolvency was caused only by reduced premiums. She
sees the issue as a public policy call and pointed out that
other states have had to decide how to deal with insolvent
insurers, as well. The Fremont situation is an extreme case and
Alaska does not have the ability to fund the claims under
current statutes.
SENATOR SEEKINS said:
I understand that. I just think that some of those
same people who weren't involved in those companies
[and] are in the fallout that came have exactly the
same argument as those people who are self insured who
have no input ever into the fund....
CHAIR BUNDE refrained:
I think my intent is to put a little reverse spin on
that and say we're all potential beneficiaries so we
perhaps all should be part of the solution.... Just
for the record, I have heard Pam LaBolle testifying
that Alaska's businesses are under a good deal of
pressure and an additional assessment would be
difficult for them to absorb - that there would be
some negative consequences to businesses in Alaska
having faced in the recent past an increase in
assessment, so...
SENATOR SEEKINS noted that an assessment on employers eventually
trickles down to being an assessment on employees. "It goes
right to the pocketbooks of the people who are doing the work
every day."
CHAIR BUNDE quipped, "Again, oversimplifying, I'm just cutting
out the middle man."
CHAIR BUNDE closed public testimony on SB 276.
SENATOR SEEKINS moved to pass CSSB 276(L&C), version \H, from
committee with individual recommendations, attached fiscal note
and letter of intent.
SENATOR FRENCH objected saying he understands the point the
chairman is trying to make, but it seems like the committee is
adopting a course that will lead to non-passage of the bill,
which is ultimately a bad idea. It discredits the work that Ms.
Hall did in creating a feasible funding mechanism for covering
the shortfall and raises the stakes on this issue to the point
where many people will feel uncomfortable voting for it because
of the fact that it goes to the earnings reserve of the
Permanent Fund. It makes the argument for enshrining the
dividend in the constitution stronger, because the funding
mechanism in SB 276 will be characterized by many as a raid on
the Permanent Fund.
CHAIR BUNDE defended his philosophical stand on policy saying:
Just for the record, to point out that we are not
broaching new ground here. The earnings of the
Permanent Fund, and we definitely need to point out
there is a big difference between the corpus and the
earnings, you understand. The earnings are currently
used on several levels. They are used to fund the
application process at some $5 million; they're used
for the hold harmless for tens of millions of dollars
for people who would lose their welfare when they get
their dividend; they're used, of course, for inflation
proofing; and, of course, used for the dividend. So,
the Legislature currently has the power and does
indeed appropriate monies from the earnings. If the
worst-case scenario that you ascribe to occurs, well
there's always a possibility of funding it out of the
general fund.
SENATOR SEEKINS said, having been on the Board of Trustees of
the Permanent Fund and understanding that the Legislature spent
$35 million last year for a hold harmless [agreement], public
safety and other issues, he could equate the Permanent Fund to
his family checkbook and would, therefore, not choose to
inflation proof his savings account, if his kids were starving
to death.
When I take a look at the challenge we are facing on
some of the issues - fully funding education - I
support that; the PERS and TRS downfall - I think we
need to address that; these kinds of situations that
were uncontrollable by the state, unforeseeable - I
think these are areas where if it came down to it, I
don't think it's competition for the dividend. I don't
think that the competition is for the dividend at all
when I look at we might be spending as much as $575
million this next year to inflation proof a savings
account when we can't educate our children. So, to me,
I understand the funds are available for different
things and in inflation proofing, we're actually
inflation proofing appreciating assets, which normally
is not done. So, the wisdom of the Legislature, I
think has to take a look at a portion of this and it
does not jeopardize the dividend. I'm concerned that
some members now who have supported
constitutionalizing the dividend are concerned that
this might speed the process.
SENATOR FRENCH refuted his argument saying:
The Permanent Fund is not your family checkbook. It's
the checkbook of the people of the State of Alaska, if
you will, and they have been pretty adamant about the
methods in which they prefer to see it spent and I
don't think this is one of them.
CHAIR BUNDE asked for the roll to be called. Senators Seekins,
Stevens and Bunde voted yea; Senator French voted nay; and CSSB
276(L&C), version H, passed from committee.
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