Legislation to privatize the state fund that provides workers' compensation to 60 percent of Arizona's employers is drawing staunch opposition from business groups, as well as the fund's president and CEO.
State Sen. Bob Burns, R-Glendale, and Rep. Tom Boone, R-Buckeye, are proposing legislation to sell the State Compensation Fund of Arizona to a private or nonprofit operator.
All employers are required by state law to provide workers' compensation insurance, and the State Compensation Fund is the “carrier of last resort” for businesses that cannot get coverage elsewhere.
“The whole point of selling assets at this particular point in time is to get us through this budget crisis,” Burns said. “We're in a situation where we're $500 million short of having enough revenue to support current funding levels.
So my thought was that we could sell some assets and get some cash to hold us over until hopefully the economy comes back and we see an increase in our revenue to catch up with our spending level because it would only be a one-time thing.”
Boone didn't return calls seeking comment on the legislation.
Burns said he questions whether the State Compensation Fund has gotten too big, and whether the state has created a monopoly.
“I was on the comp fund when I was in business,” he said. “I certainly don't want to hurt those businesses, so we want to bring as many people to the table as we can and hopefully come up with a solution that benefits us all.”
Don Smith, president and CEO of the State Compensation Fund, said his research shows that the state doesn't own the fund's assets, so the Legislature cannot sell the fund.
“I think more homework needs to be done as to whether or not the assets of the State Compensation Fund actually belong to the state of Arizona,” he said. “There's a huge dispute that needs to be resolved.”
Farrell Quinlan of the Arizona Chamber of Commerce calls the proposals “just a bad idea whose time hasn't come and should never come.”
“The state General Fund has a large deficit and the State Compensation Fund does not contribute to it at all,” he said. “It has separate financing, it's completely separate from the General Fund. This would be bad for anybody who has to buy workers' comp.”
Privatizing the fund would likely cause employers' premiums to increase because the fund would be required to show a profit, Quinlan said.
Michelle Bolton, Arizona director of the National Federation of Independent Business, said her organization is opposed to privatization. Small business relies on the State Compensation Fund because a lot of larger carriers don't offer policies to small employers, she said.
She also said having to return a profit would cause higher rates.
“They've got to make sure that they're making and turning a profit to make it profitable to shareholders,” she said. “The State Compensation Fund, though it acts like a business, it's this quasi-governmental entity. Any kind of excess money . . . is returned back to the policyholders. It's not given to shareholders or taken by a CEO for profit.”