Colorado Senate Panel Looks at Workers’ Comp to Fund Higher Ed

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Colorado lawmakers are looking at a plan to take $500 million from the state-created workers’ compensation insurance company to reverse deep cuts in higher education.

The Senate Appropriations Committee reviewed the plan as one of nearly two dozen proposals to cut funding and transfer dollars recommended by the Joint Budget Committee to balance next year1s budget. The new fiscal year starts July 1.

Pinnacol Assurance, the workers1 compensation insurance company, largely operates independent of the government. It has a surplus of $698 million, about six times the minimum required by the state.

The company says it needs that amount to ensure it can pay claims and because it can’t rely on the state or a parent company for backup. However, it is exploring ways it could use its $2 billion in assets to voluntarily help the state balance its budget.

Pinnacol CEO Ken Ross said there might be some “investment vehicle” the company uses that could help the state. He declined to elaborate, but said the company hopes to let lawmakers know of any possible alternatives the week of April 13 — their deadline for passing a budget for the next fiscal year.

Pinnacol is a hybrid public-private entity that has its roots in a state agency created in 1915 to provide workers’ compensation insurance. The Legislature set it up as a separate company in 2002, and the company is defined in law as a political subdivision of the state. However, the company, not the state, currently has ownership of its funds. Pinnacol doesn’t pay state or federal taxes, and its board is appointed by the governor. As the insurer of last resort, it must provide workers’ compensation to any company that needs it.

Pinnacol’s surplus has grown to almost $700 million, and some lawmakers see taking $500 million of that as a way to reverse $300 million of the proposed cuts to higher education, preventing double-digit tuition increases and the possible closure of some state colleges. The other $200 million would go into the state’s reserves in case more cuts are needed because of the recession.

Ross has met with members of the governor’s staff, and also met with Majority Leader Brandon Shaffer, after testifying that Shaffer’s bill would weaken Ross1 position and give the state control of Pinnacol’s assets. The Senate Appropriations Committee backed that measure (Senate Bill 281) and another recommended by the Joint Budget Committee that would take $500 million to balance next year’s budget (Senate Bill 273). Business owners lined up to testify against the measures, fearing they could drive up their insurance premiums.

Evan Dreyer, a spokesman for Gov. Bill Ritter, confirmed the governor’s staff has also been meeting with Pinnacol. “The discussions are taking place on a very tight timeline,” Dreyer said. “We are hopeful we can reach agreement on a plan. If not, we will need to make some very difficult choices.”

Lawmakers have incentive to talk, because Pinnacol has threatened to take the state to court if lawmakers take its money. That could tie up the money needed for next year’s budget year — which starts July 1 — for months if not years.

The Colorado solicitor general says tapping a state-created workers’ compensation insurance company for money to balance the state budget would be unconstitutional. “Pinnacol’s funds are not assets of the state and Pinnacol’s policyholders have vested rights in any surplus funds,” Domenico wrote. Seizing the money “would violate the Colorado Constitution.”

The bill to take $500 million is sponsored by Republican Sen. Al White, a budget committee member, but other Senate Republicans say Pinnacol is a private company and taking its money is a step toward socialism. They oppose the cuts to higher education but say pitting Pinnacol against higher education is wrong.

Sen. Ted Harvey, R-Highlands Ranch, said the proposal is a reversal of what happened with bailed-out insurance giant AIG because in Colorado, the state is trying to get Pinnacol to bail it out of a budget hole.

Sen. Moe Keller, D-Wheat Ridge, said the budget committee ran out of options that would raise enough money.

The extra Pinnacol money would help state colleges and universities for only one year, but Sen. Bob Bacon, D-Fort Collins, said it’s worth the effort because the damage of closing or scaling back schools even for one year would take years to undo.

“People do not understand the seriousness of the situation, that we are ready to defund higher education in this state,” Bacon said. “It’s tragic, absolutely tragic.”