Fiscal Note & Local Impact Statement
127 th General Assembly of Ohio
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BILL: |
DATE: |
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STATUS: |
SPONSOR: |
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LOCAL IMPACT
STATEMENT REQUIRED: |
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STATE FUND |
FY 2008 |
FY 2009 |
FUTURE YEARS |
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Workers' Compensation
Custodial Funds |
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Revenues |
Possible gain or loss |
Possible gain or loss |
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Expenditures |
Minimal increase from
State Insurance Fund for background checks |
Minimal increase from
State Insurance Fund for background checks |
Minimal increase from
State Insurance Fund for background checks |
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General Reimbursement Fund
(Fund 106) - Attorney General |
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Revenues |
Minimal gain in background
check revenue |
Minimal gain in background
check revenue |
Minimal gain in background
check revenue |
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Expenditures |
- 0 - |
- 0 - |
- 0 - |
Note: The state
fiscal year is July 1 through June 30.
For example, FY 2007 is July 1, 2006 – June 30, 2007.
·
Investment
returns into the surplus and reserve of the State Insurance Fund and all other
workers' compensation custodial funds could increase or decrease as a result of
the bill limiting investments of these funds to a "white list" of
permitted investments and removing prohibitions on certain investment classes
under current law, depending on the classes in which funds are invested and the
state of the markets.
·
There
may be a minimal increase in expenditures from the State Insurance Fund for the
costs of conducting background checks on potential outside investment
consultants. Fees paid for this purpose
are collected by the Bureau of Criminal Investigation and Identification and
deposited into the Attorney General's General Reimbursement Fund (Fund 106).
·
No
direct fiscal effect on political subdivisions.
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Permitted investments
The
bill applies the entire Bureau of Workers' Compensation (BWC) investment policy
to all of the workers' compensation custodial funds in addition to the State
Insurance Fund (SIF). The SIF is the
primary source for compensation payments to injured workers and has historically
been the focus of the investment policy.
However, the bill also applies the law regarding BWC investments to the
other custodial funds, which include the Premium Payment Security Fund, the
Self-Insuring Employer Guaranty Fund, the Disabled Worker Relief Fund, the
Public Work-Relief Employees' Compensation Fund, the Coal Workers'
Pneumoconiosis Fund, and the Marine Industry Fund.
The bill removes the current
statutory requirement that the Administrator of Workers' Compensation make
investments and manage the various workers' compensation funds in a manner that
a prudent person acting in a like capacity and familiar with such matters would
use in an enterprise with like character and like aims, including
diversification of investments to minimize risk unless circumstances render it
not prudent to do so. The removal of
this requirement opens the potential for the Bureau of Workers' Compensation to
invest moneys in the surplus and reserve of the State Insurance Fund and the
other workers' compensation custodial funds in investments with high returns,
but also high risk. However, in place
of the "prudent person" standard and in order to provide some
investment limitations, the bill also enumerates the classes in which the
Bureau is permitted to invest and places additional restrictions on how much of
the funds may be invested in certain classes, thereby serving to mitigate the
effect of removing the prudent person standard from the law.
Under
the bill, the Bureau (acting through the authority of the Administrator) is
permitted to invest the assets of the custodial funds only in any of the 28
investment classes specifically identified in division (A) of section 4123.443
of the Revised Code. These are
described in detail in the LSC bill analysis.
This "white list" limits the classes the Bureau can invest in
only to those specifically named. The
bill also removes a list of current prohibited investments and places
restrictions on the list of permitted investments in order to prevent BWC from
investing in large portions of single companies or investing large fractions of
the fund's surplus and reserves in a single type of asset class, such as real
estate or railroad holdings.
The
bill could have either a positive or negative effect on investment returns into
the surplus and reserves of the workers' compensation custodial funds as a
result of these changes, depending on the allocation of assets in the Bureau's
investment portfolio and the state of the markets for those various assets.
Criminal records checks for investment
consultants
Current
law permits the Administrator to enter into contracts with outside investment
managers, with the contracts paid for out of the State Insurance Fund, and to
request that the superintendent of the Bureau of Criminal Investigation and
Identification (BCII) conduct a criminal records check on the employees of the
investment manager who would be working on the BWC portfolio. The bill would apply the background check
requirement to contracts with investment consultants as well. While investment managers perform the duties
of actually facilitating the dispensation of BWC funds into various investment
classes, investment consultants may be used to perform analyses and offer
advice and opinions on these investments.
From
a fiscal perspective, BWC must pay a fee to BCII for the execution of these
criminal records checks. At this time,
LSC does not have information as to what the funding source is for these
fees. However, because the contracts
for the investment managers and investment consultants are paid out of the
State Insurance Fund, it is likely that the fees for criminal records checks on
the consultants would be paid from the same funds. Since the State Insurance Fund holds assets of between $18
billion and $20 billion, any increase in expenditures for paying the fees for
background checks would be minimal and not have a significant effect on the
fund's ability to pay compensation to injured workers.
Fees
are collected by BCII and deposited into the General Reimbursement Fund (Fund
106), in the General Services Fund Group and housed within the Attorney
General's office. This is the fund into
which all fees paid to BCII for conducting civilian criminal records checks are
deposited. Revenues to this fund as a
result of this bill are not expected to have more than a minimal fiscal impact
on the fund.
LSC fiscal staff: Brian Hoffmeister, Budget Analyst