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Thursday, March 10,2011

Teed off

Angry lawmakers could raid workers’ comp firm accused of taking lavish golf junkets

By Jefferson Dodge

As the fallout continues over the golf-and-liquor junkets taken by executives at the state’s workers’ compensation company, Pinnacol Assurance, some lawmakers are privately reviving the idea of using the group’s millions in surplus funds to help shore up the state’s crippled budget.

And this time, it might offset some of those steep hikes that businesses are seeing in their unemployment insurance rates.

Pinnacol, a quasi-governmental agency that gets state tax breaks in exchange for serving as the “insurer of last resort” for workers’ compensation coverage, came under fire last May after Denver television station KMGH 7News uncovered the latest in a string of questionable expenditures by the company: a five-day trip to Pebble Beach that cost more than $318,000. The company’s board is appointed by the governor, and its employees are eligible for the state’s retirement plan. But Pinnacol officials say the luxury trips are justified because it is charged by the state to be run as a private insurance company. State officials disagree, and have been proposing an array of measures aimed at reining in Pinnacol’s spending habits.

2009 raid attempt

In 2009, state leaders discussed raiding $500 million from Pinnacol’s surplus funds to backfill the ailing state budget. The idea was eventually abandoned, in part because Republicans and Pinnacol argued that the surplus rightfully belongs to its policyholders — or maybe the injured workers owed benefits.

But House Minority Leader Sal Pace, D-Pueblo, who already has a bill in this session targeting Pinnacol’s lavish trips, told Boulder Weekly that there have been private discussions among legislators about resurrecting the idea of using the company’s surplus funds to shore up the state budget and avoid some of the severe cuts proposed by Gov. John Hickenlooper, like those targeting education.

Pace says that since Republicans would like to see private businesses benefit from any use of Pinnacol’s surplus, one idea being considered is to apply those funds toward the state’s unemployment insurance debt, which theoretically would take some pressure off the state’s budget crunch.

According to the Colorado Department of Labor and Employment, the recession took a serious toll on the state’s unemployment trust fund, and the state is hiking the rates paid by private businesses. Bill Thoennes, spokesperson for the department, says state statute requires special tax formulas to be triggered when the trust fund drops below a certain threshold, and many businesses are seeing a significant increase in their rates.

In July 2009, the balance of that trust fund was about $339 million. Today, it is about $518 million in the red. At the end of 2010, the Pinnacol surplus was $548 million.

“We could use that,” Thoennes joked when informed of the surplus amount.

Colorado’s ongoing cost of paying unemployment benefits to Colorado workers is being loaned by the federal government. And while a swing of nearly $860 million may seem like a lot, Colorado is in the middle of the pack when it comes to states that owe money to their jobless fund — on the high end, California is $10.1 billion in the red.

Using Pinnacol’s surplus funding to bolster Colorado’s unemployment trust fund could benefit businesses because it should lower the rates they pay for unemployment insurance, which may appeal to Republicans.

But John Cevette, who is chief of staff to Senate President Brandon Shaffer, D-Longmont, and who was recently appointed to the Pinnacol board by Hickenlooper, doubts that such a plan will get off the ground. For one thing, he says, the deadline for introducing bills has passed, so Shaffer or his counterpart in the House, Frank McNulty, R-Highlands Ranch, would have to approve “late-bill status” for any new legislation. And Shaffer is not eager to do so.

“I am ready to move beyond the Pinnacol chronicles,” Shaffer told Boulder Weekly. “I don’t want to foreclose all possibilities; if somebody has a great idea out there, I’m always willing to listen, but I haven’t heard this one yet. No one has pitched this to me, so I’m not inclined to go down this road at this time.”

He also noted that a coalition of business groups has already issued a proposal for addressing the state’s unemployment debt.

But Pinnacol is not out of the woods yet.

Cevette was on the winning side of the board’s recent close vote to yank Pinnacol CEO Ken Ross’s 2010 bonus of $163,000 as punishment for his altercation with KMGH 7News reporter Tony Kovaleski in May 2010. Footage shows that Ross had to be physically restrained while lunging at Kovaleski, and at one point he tells the reporter, “Point your finger at me again, I’m gonna break it, you get it?” “The trip was ill-advised,” Cevette says. “I don’t know how, in this day and age, anyone can spend that type of money on a five-day trip. And secondly, the physical confrontation was just unacceptable. You cannot have a CEO putting his hands over the lens of the camera and having to be physically restrained and going after the reporter.”

More Pinnacol board action could be coming.

Cevette is also serving on a four-person task force the Pinnacol board agreed to form to examine the company’s travel and expense vouchers over the past two years. Prompted by a request from the governor, the task force is expected to issue its report in 60 days, and its findings will determine whether additional sanctions or personnel actions are warranted.

“It’s a good company. It has good people working for it. It just got a bit off track, and we just need to get it back on track,” Cevette says. “And that’s basically to explore all of these rumors and all of this negative stuff and find out if it’s true or not. And if it is true, we correct it, and if it’s not, we just lay it out there and say this is what the situation is, and do it in a very transparent way so that there’s no question about where we are.”

Pace’s bill

When asked about his legislation to rein in the amount that Pinnacol is allowed to spend on travel, Pace rattles off a litany of Pinnacol expenses racked up during that ill-fated Pebble Beach trip.

• $39,659 in golf and spa services, including sports pedicures and pebble massages • $19,120 for one dinner, including seven bottles of $100 Chardonnay • $8,091 for a special wine tour by bus • $1,795 on Jack Daniels, bottles of wine and filet mignon in a single night • $1,040 in penalties for no-shows at golf tee times • $325 for special pink golf balls “I don’t understand the need for pink golf balls,” Pace says. “Maybe it flies farther.”

And according to Pace, the Pebble Beach trip was not the first junket taken by Pinnacol executives over the past few years. He lists $133,000 for a trip to the Four Seasons in Scottsdale, Ariz., $109,000 for an island getaway in South Carolina and $25,000 for a two-night stay at a Ritz-Carlton. Pace says Pinnacol also paid $14,393 for a luxury suite at Invesco Field.

He scoffs at the notion that the company is simply doing what other insurance companies do to remain competitive, retain their sales staff and keep them motivated.

“If we didn’t create Pinnacol and give them a market and give them tax breaks and put their employees on our state retirement system and appoint their board, maybe we’re talking about a private insurance company,” Pace says. “But they’re not.”

Pace’s House Bill 1211 would prohibit any state-chartered entity from paying any travel-related expense on behalf of a board member, officer or employee in excess of twice the annual per diem rate allowed by the federal government. But he was contacted by several state agencies, including the University of Colorado, that asked him to narrow the scope of his bill so that they would be excluded. In the case of CU, Pace said, he was told by a CU lobbyist that athletics squads like the women’s basketball team and the football team would be unable to adhere to such restrictions, and that CU researchers engaged in remote projects, such as taking ice core samples in Greenland, for example, would be unable to come in under twice the federal per diem. He was urged to narrow the scope of the bill to apply only to Pinnacol, which he says he will do, with reservations.

“I’m willing to do that, to get it passed,” Pace says. “It does disturb me that so many other state entities have said they can’t live within these very generous amounts that I’ve offered them.”

He adds, “If this is good policy for Pinnacol, it’s good for any state agency. I don’t think any taxpayer dollars should be abused in the lavish way that Pinnacol has been traveling.”

“They can say it’s not taxpayer dollars,” Pace continues. “They can argue that. But it’s not their money either. According to statute, it belongs to the ratepayers, which are the businesses of Colorado.”

Pace’s latest bill is the successor to others he introduced last year. One that passed, he says, targeted Pinnacol for not paying workers’ compensation benefits in a timely fashion. The other, which died, would have curtailed Pinnacol’s surveillance efforts. According to Pace, the company was paying more that $5 million a year to spy on injured workers to make sure they weren’t abusing the system. In some cases, he says, they were targeting people who had lost arms and legs on the job.

“How does someone grow a leg back?” Pace asks.

“We literally had those witnesses come in. … A lot of injured workers would settle for far less than they were asking, just to get the surveillance off their backs.”

‘A good first step’

Asked about the board’s decision to pull the Pinnacol CEO’s bonus, Pace says, “I think it’s a good first step.”

Other legislators agreed. “I would say that’s a good place to start,” says Rep. Claire Levy, D-Boulder, who sits on the House State, Veterans and Military Affairs Committee, which is slated to hear Pace’s amended bill today, March 10.

“There isn’t any disagreement on the fact that Pinnacol has behaved really atrociously and they’ve spent money in a really irresponsible way on this travel stuff,” she told Boulder Weekly. “And I don’t think that’s a partisan issue. When you look at what they treated themselves to — using the money that businesses pay them to provide workers’ compensation insurance — is pretty outrageous. I think something ought to be done about it, and I think most people agree with that.”

Asked about the idea of using the Pinnocal surplus to help the state budget, Levy endorsed the idea, as long as enough reserves are left to cover the company’s potential liabilities.

“That might be a pretty sound way to use that money, assuming you can do it actuarially, without putting Pinnacol at risk,” she says, adding that the company no longer seems to be primarily providing the public service of giving coverage to small businesses that can’t afford regular market rates. “We’ve probably given them too generous a deal.”

“Anybody that carries that kind of reserve is either charging too much to their business customers or not paying enough to injured workers,” adds Rep. Matt Jones, D-Louisville, who served in the Legislature about two decades ago and fought unsuccessfully against a bill that Pinnacol supported, a bill that he says took benefits away from workers injured on the job.

“They did a schedule: if it was that your hand came off, it was this much money, if it was your arm, it was this much money,” he says. “I can’t quote you the amount of money, but it ain’t a whole lot of money. … Insurance companies were put into place to protect employers, but also to make sure that workers weren’t adversely affected when they’re injured on the job, and we need to make sure we continue to take care of the workers.”

Jones says he would probably support tapping into Pinnacol’s surplus, or at least bringing the company back under more state control.

“A few years ago, we gave them more autonomy, and I think that’s what gave people the idea that they could treat this like their own private business, which it is not,” he says. “You’d think they had gotten the message about lavish trips, and they still did it, so I think they need to be closely monitored.”

The effort to rein in Pinnacol’s junkets seems to be bipartisan. Rep. Mark Waller, R-Colorado Springs, a member of the House state affairs committee that is poised to consider Pace’s bill, says he is ready to support the legislation, with minor amendments. He says opinions are still divided about whether the Pinnacol surplus belongs to the taxpayers, the ratepayers or the injured workers, “If you ask three different people here, you’ll get three different answers,” he says. “Good, bad, right or wrong, [Pinnacol is] held to this different standard, because they’re in this sort of private sector/ government no-man’s land. The board of [insurance company] USAA doesn’t come to the Colorado Legislature for oversight. Pinnacol does. Republicans and Democrats are working together to overcome this issue of excessive travel.”

In response to a request for comment, Pinnacol spokesperson Suzi Stolte wrote in an e-mail, “The May 2010 agent incentive event has been discussed for nearly a year, and last week the Pinnacol Board of Directors made a decision to not award CEO Ken Ross his 2010 bonus of $163,000 because of his behavior during that event. The board has established a special committee to perform a general review of the agent incentive trip as well as other relevant matters. It will be delivered to the governor at his request no later than May 2, 2011. We won’t have anything further to say until after the special committee issues its report.”

Respond: letters@boulderweekly.com

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