Master FIR (1988)

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F I S C A L I M P A C T R E P O R T

SPONSOR:	Kysar		DATE TYPED:	02/09/99		HB
SHORT TITLE:		Abolish Risk Reserve				SB	349
					ANALYST:		Carrillo

APPROPRIATION

Appropriation Contained		Estimated Additional Impact		Recurring or Non-Rec	Fund Affected
FY99	FY2000	FY99	FY2000	Recurring or Non-Rec	Fund Affected
		*

REVENUE

Estimated Revenue		Subsequent Years Impact	Recurring or Non-Rec	Fund Affected
FY99	FY2000	Subsequent Years Impact	Recurring or Non-Rec	Fund Affected
		*

(Parenthesis ( ) Indicate Expenditure Decreases)

*See fiscal impact section.

Duplicates/Conflicts with/Companion to/Relates to

SOURCES OF INFORMATION

General Services Department

LFC Files

SUMMARY

Synopsis of Bill

Senate Bill 349 proposes to repeal the risk reserve and transfer the balance to the risk funds -

Surety Bond, Public Property, Workers' Compensation, Public Liability and State Unemployment Compensation. SB349 carries an emergency clause.

Significant Issues

The proposed legislation restores control of the money in the risk reserve to the Risk Management Division (RMD) of the General Services Department (GSD). GSD is anticipating a need to pay claims of several million dollars. These claims payments will exceed the cash available to the RMD in the current fiscal year.

The purpose of the risk reserve is to be used only upon specific authorization by the legislature for a specific amount to either meet: (1) obligations of the general fund that cannot be satisfied by general fund revenues, including any amounts in the operating reserves; or (2) obligations of any risk fund that cannot be met by the balance in that risk fund.

FISCAL IMPLICATIONS

According to GSD staff: "There is no fiscal impact on the general fund operating reserve. If cash is not available to pay claims, there could be additional costs to RMD to settle those cases. If a special session of the legislature were needed for access to the money in the Risk Reserve, the general fund costs to the state is estimated at a minimum of $100,000."

Even with the enactment of this legislation, there is no guarantee that a special session would be needed should the balance in a fund not be sufficient to cover the cost of claims.

There is a fiscal impact to the risk funds themselves. The State is self-insured for surety bond, public property, workers' compensation, public liability and state unemployment compensation. According to the most recent actuarial report (as of June 30, 1998), indicates the following projected financial position for each of the funds:

•Workers' Compensation - $16,431,646 surplus, reserves will be monitored by the consultant during the FY99 to see if reserves appear to be appropriate. It appears premiums will be charged in FY2001.

•Public Liability - $6,766,273 surplus, the fund is volatile and unpredictable as to when large groups of claims will be paid. The consultant anticipates this fund will be in a deficit position in the future.

•Surety Bond - $1,267,776 surplus, the fund is stable.

•Public Property - $619,687 deficit, the fund is still solid on a cash basis and will build appropriate reserves over a period of time.

•State Unemployment Compensation - $1,767,876 surplus, this fund is in satisfactory condition.

The audited balances in the funds as of June 30, 1998 were:

Workers' Compensation 43,125.7

Surety Bond 1,259.9

Public Property 1,774.7

State Unemployment 1,097.9

Public Liability 93,234.6

TOTAL 140,492.8

The projected balances for June 30, 1999 and June 30, 2000 are illustrated below.

June 30, 1999 June 30, 2000

Workers' Compensation 30,193.6 17,116.0

Surety Bond 1,146.2 1,030.0

Public Property 2,093.4 1,972.0

State Unemployment 1,863.1 (1,900.3)

Public Liability 59,872.5 12,888.5

TOTAL 95,168.8 31,106.2

The proposed legislation does not include provisions for oversight of the management of the five funds. The RMD would have unlimited access to the funds. Under the current statutory provisions, legislative authorization is required to move transfer money from the risk reserve to the five funds. Funding, based on requests submitted by GSD, for the five risk funds is appropriated by the legislature.

OTHER SUBSTANTIVE ISSUES

The opportunity exists to address current fiscal year concerns during the 1999 Legislative Session. If necessary, several alternatives may be applied to address unanticipated needs that have arisen since the previous legislative session. Some of these alternatives include: special, supplemental, and/or deficiency appropriations with related language.

WJC/njw

Attachment