A Budget Made Of Straw

Among the sketchiest of budget solutions passed last month was the plan to sell the State Compensation Insurance Fund for $1 billion dollars. This would be a perfect plan, if anybody actually wanted to buy it. But they don't, and so later this year, there will be this $1 billion dollar hole in the budget, and oh-so-sincere Yacht Party types will assume that it's just the cause of overspending, or something.

"This isn't going to happen any time in the next three to four years because there would be one court case, if not many," said Frank Neuhauser, a University of California, Berkeley, researcher and expert on workers' compensation. "There's no money coming from this in the short term that would resolve a budget problem. I think it's no better than smoke and mirrors."

The list of problems with the proposed sale is long.

The authorizing bill requires that State Fund's board of directors agree that assets identified by the state are appropriate to sell. Whether that gives the board veto power is already under dispute, a key point since the board opposes any sale.

The board's right, by the way, since the only way you could sell off any of the assets of the worker's compensation insurer of last resort is by selling off low-risk policies to private interests, essentially saddling the SCIF with the worst policies and driving premiums up. This from the Governor who supposedly "slashed" worker's comp.

Meanwhile, there's this inconvenient set of facts:

A major question is whether the state even owns State Fund assets. Policyholders likely would argue that the assets belong to them, not the state.

When Colorado lawmakers this year attempted to take $500 million from its workers' compensation fund, Colorado's attorney general concluded the money was not the state's to take and would incur extensive litigation. A Utah judge in 2005 ruled that Utah likewise had no ownership in its workers' compensation fund "other than as a policyholder."

"I don't see where that money is the state's to take," said Neuhauser, the UC Berkeley workers' compensation expert. "When the reserves are more than necessary, they are given back as dividends. I've always thought of that as the employers' money and never understood how it's possible the state could sell it."

We see here, once again, the practice of breaking the law to balance the budget. Because the Yacht Party refuses to properly fund government, and because the current rules allow them a minority veto, the only avenues left are raiding special funds and illegal or unworkable gimmicks. It's a budget built of straw.

(By the way, John Chiang, attributing the problem to "irresponsible spending" doesn't really help matters)