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.