Rocky Mountain Two Step: Destabilize and Deprivitize?

April 9th, 2009 by

Colorado, like most states, is facing a serious budget deficit. They are scrambling to balance the budget. So the legislature came up with the brilliant idea of tapping the reserves set aside by Pinnacol, the state’s largest provider of workers comp coverage, with 70 percent of businesses in the fold. Pinnacol began as a state operation and was subsequently spun off. It now operates – very profitably – as a mutual insurance company.
The state, facing a budget deficit of $1.4 billion, has its eye on $500 million that Pinnacol has set aside to cover the future costs of current claims. They have proposed a Rocky Mountain two step: first, make Pinnacol a state agency, as it once was, thereby assuming control of the company’s assets. Then, draw $500 million from the reserves and use them to cover a chunk of the current budget deficit.
As is so often the case, Pinnacol is being punished for being successful. Despite having reduced comp premiums by 42 percent over the past four years, and despite having set aside the funds needed to cover future obligations on current claims, Pinnacol is now the proverbial sitting duck. Blinded by cash in the coffers, legislators are poised to make two big mistakes: deprivatize a successful privatization and destabilize a financially stable operation. What are they smoking in the thin mountain air?
Mediocre Alternatives
A consortium of Colorado businesses has lined up against the ill-advised measure. As an alternative, they suggest three steps to close the budget gap:
: “tobacco securitization” – selling bonds against future tobacco settlements [after the economic debacle of the past 8 months, you might label this proposed process insecuritization.]
: sell state buildings [in a depressed market???]
: Reduce the pay of all state employees across the board [easy for the private sector folks to say]
At this point, I’m not convinced that either plan is worth pursuing. As a general rule, it is a bad idea to solve big,short-term problems by making bigger, long-term mistakes. Here’s hoping that cooler heads in the clear, mountain air of Colorado kick back with a Coors and figure out a better path toward solvency .

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