$6.5 million at the heart of the Quackenbush scandal resurfaces

Eight years after Insurance Commissioner Charles Quackenbush resigned under fire for funneling insurers' fines into a political slush fund, some $6.5 million is actually going to be used for its original purpose – investigating seismic risks.

The money from the scandal-plagued California Research and Assistance Fund, or CRAF, a nonprofit that has been dissolved in the wake of Quackenbush's departure, will be dispensed by the state Seismic Safety Commission in the form of grants and contracts. The money, the fund and the insurance insurers who paid the fines took center stage in the Capitol for months during an unfolding political scandal. 

"It went through years of settlements and court hearings, and it just took a long time for all the parties to reach agreement and get it approved in the courts," said Richard McCarthy, executive director of the Seismic Safety Commission.

To consumer activists, the fiercest opponents of Quackenbush, the end of the battle over the fund is bittersweet. They believe that by donating to the fund, insurers were let off the hook for far larger fines that should have been imposed. 

"We could have retrofitted every building in Los Angeles with the penalties that should have been imposed on insurance companies, so it hardly satisfies the need that exists," said Doug Heller of Consumer Watchdog. "This is the quiet end of a political disaster."

The fund's legal odyssey has been tortuous.

The state attorney general went to court in May 2000-two months before Quackenbush resigned-to protect CRAF and, at the state's behest, a local Superior Court judge seized control of the fund. The money was under the jurisdiction of the attorney general for years as the legal issues were contested. Ultimately, a settlement was reached between the state and the insurers that calls for the Seismic Safety Commission to have authority over all of CRAF's funds, except for certain fees and payments to creditors and other costs.

The money, now in the hands of the Schwarzenegger administration in a special fund at the Department of Finance, will be disbursed through a competitive process, and authorities believe the grants will generate private matching funds in a public-private partnership.

"This is exactly how we stipulated that our contributions be used when we made our agreement with the Department of Insurance," said State Farm spokesman Bill Sirola, "that our funding was to be used solely for the public purpose of earthquake damage assessment and research."

CRAF wasn't the only disputed fund that emerged during the Quackenbush scandal, but it was the largest and it drew the most attention. As for Quackenbush, now 54, he was never convicted of wrongdoing but he left office under a cloud following hearings in the Democrat-controlled Legislature. Quackenbush, once a GOP rising star and likely candidate for governor, left the state, lived in Hawaii and Ohio, and now lives in Fort Myers, Fla., where he is a sheriff's deputy. He drew public attention in March for shooting his weapon during a domestic disturbance call. He was placed on administrative leave and was later exonerated of any wrongdoing.

Projects likely to receive funding include a $50,000 study of tsunami risk to the Port of Long Beach by the National Oceanic and Atmospheric Administration, and a $350,000 study by San Jose State University of the performance of Field Act-approved buildings. The Field Act is the state's earthquake-safety law governing construction.

Last fall, the final stage began as the commission started setting up the grant and contracting procedures. The first round included $2 million; more phases are planned. "We are looking at grants for educational issues, scientific issues, structural performance issues, the social sciences," McCarthy said. "The governor is looking for partnerships, and with  public-private partnerships, the public gets a bigger bang for its buck."

CRAF, a creation of the commissioner and his political advisers, ostensibly was supposed to serve the public by using money collected from insurance companies to pay for education and research.

In fact, the fund bankrolled political polling, a $3 million ad campaign featuring the commissioner and other non-earthquake purpose. Some $500,000 was given to the Greater Sacramento Urban League-of which Quackenbush was a board member-and $400,000 went to Quackenbush's political advisory team. Some $12.8 million was collected from insurers.

But he came under fire for allowing insurers to donate to the nonprofit fund, rather than fining them potentially hundreds of millions of dollars for thousands of alleged violations following the 1994 Northridge earthquake. The Los Angeles Times first reported the existence of the alleged violations and the political issues surrounding CRAF–reports that ultimately led to Quackenbush's departure.

But now that the political tumult has subsided, the only thing that is left is the money.

"It's been a long journey getting there," Sirola said.

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