Lawmaker drops attempt to finance insurance commissioner’s race with new tax on insurers

A Bay Area lawmaker has dropped his plan to finance the campaigns of
candidates for insurance commissioner through a new tax on insurance
companies. Backers said the proposal would serve as a first-ever pilot
project for public financing of campaigns.

The insurance commissioner is one of the state’s most powerful regulators,
with authority that affects the pocketbooks of millions of Californians.
“If there is one place that a case can be made for clean money, it is the
insurance commissioner’s race,” said Sen. Joe Simitian, D-Palo Alto. “The
sole purpose of the office is to regulate a single industry. It’s tough to
argue against clean money in this campaign.” Simitian dropped the bill for
the year on Wednesday at a Senate hearing. “We’re going to wait and see,” he
said, adding that he wanted legislative attention directed at Assemblywoman
Loni Hancock’s AB 583, a more comprehensive public campaign-finance bill
that awaits action in the Senate.

“He [Simitian] ought to be complimented on coming up with a creative funding
mechanism for the insurance commissioner’s race,” said Susan Lerner of the
Clean Money Campaign.

Simitian’s proposal requires approval of the Legislature, governor and
voters to take effect. On its face, his SB 1459 is straightforward, although
complexity and politics lurk between the lines. Insurers would pay an
additional .001 percent of their gross premium tax to create a pool of money
in an account administered by the Fair Political Practices Commission, which
would distribute the funds to qualified candidates.

In 2004, insurers paid about $2.3 billion in premium taxes and collected
some $85 billion in gross premiums.

Just how much would be raised is in dispute. By the most conservative
estimate, the account would collect perhaps $10 million during the four-year
election cycle, or about $2.3 million annually. Insurers say it could
generate three to four times as much, or $34 million to $40 million over the
four-year cycle. They note that it could force other states to retaliate
with tax increases of their own against California companies doing business
in those states.

“It’s unconstitutional because it imposes a new tax and because it compels
insurers and their policyholders to engage in political speech,” the
Personal Insurance Federation of California wrote in a letter to Sen. Jackie
Speier, D-Hillsborough, who heads the Senate Banking, Finance and Insurance
Committee, which has jurisdiction over the bill.

To qualify for public financing, candidates would have to get, on their own,
at least 7,500 donations of $5 each. In return, they’d receive up to $1.5
million in the primary, and $3 million in the general election. They also
would get a hefty infusion of cash–as much as a five-fold increase over
their campaign cash–to fight independent expenditure committees that oppose
a candidate or favor an opponent. That means a primary candidate could
receive up to $7.5 million in the primary and $15 million in the general.

Backers and critics agree that insurers would seek to pass on any increases
to policyholders, but that boost would be less than a quarter a year for the
average policy, according to Simitian’s office. It’s also not clear whether
the commissioner, who has authority over rates, could block a carrier’s
attempt to pass on the increases. Most forms of insurance would be covered
by the bill, although health insurance through an HMO would not–HMOs are
regulated by another office, not the Department of Insurance.

An appointee of the governor for decades, the insurance commissioner became
an elected office with the 1988 passage of Proposition 103. The first
election was held in 1990. Since then, there have been frequent complaints
that insurance-industry money controls the office. In 2000, former
Commissioner Chuck Quackenbush, who received millions of dollars in campaign
donations from insurers, resigned from office after a scandal erupted over
his use of industry fines and his approval of more than two dozen secret
settlements with insurers.

Powerful but obscure, California’s insurance commissioner has the authority
to set companies’ rates, seize insolvent insurance firms, investigate and
monitor the marketplace, levy fines, and file criminal and civil charges
against rogue insurers, among numerous other duties. The commissioner heads
the Department of Insurance, a 1,300-employee agency with a $200 million
budget. The California department is the largest insurance-regulatory office
in the country. Insurance, unlike such industries as communications and
commerce, is not regulated at the federal level.

After the governor and attorney general, it is the most powerful of the
statewide offices.

But despite the power, the insurance commissioner has a low political
profile. Barring a scandal, few members of the public know who the
commissioner is–the current commissioner is John Garamendi, who is running
for lieutenant governor–and fewer still know what the commissioner does.
Those most interested in who serves as insurance commissioner are the
insurers themselves, who are directly regulated by the commissioner and
whose fees finance the Department of Insurance.

Senate President Pro Tem Don Perata, D-Oakland, supports Simitian’s bill, as
well as Hancock’s AB 583, which would provide public financing to all
legislative and statewide races–not just the insurance commissioner’s.

Simitian also supports her bill. Like Simitian’s bill, Hancock’s proposal
allows candidates who meet a threshold for $5 donations to qualify for
public financing, ranging from $250,000 for Assembly candidates to $16
million for gubernatorial campaigns. Hancock’s bill awaits action in the

Meanwhile, a proposal similar to Hancock’s, authored by the California
Nurses Association (CNA), is being readied for the November ballot.
Signature-gathering is expected to begin this weekend.

The other proposals have raised concerns from at least one consumer activist
who is familiar with insurance issues and who favors public financing of
political campaigns. He fears that Simitian’s bill potentially could thwart
the more comprehensive changes contained in the Hancock bill and CNA
initiative. “You don’t want to settle for a slice of bread, if you have a
whole loaf in the oven,” said Doug Heller of the Foundation for Taxpayer and
Consumer Rights.

Simitian said in an interview before he dropped the bill that he was aware
of the conflicting forces, but that, “I’ve always felt that our greatest
chance of success was with a narrowly crafted bill. “I’m in the crossfire on this,” he added.

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