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ARIZONA STATE LEGISLATURE
Forty-ninth Legislature – First Regular Session
SENATE COMMERCE AND ECONOMIC DEVELOPMENT AND
HOUSE OF REPRESENTATIVES COMMERCE
COMMITTEE OF REFERENCE FOR THE SUNSET REVIEWS OF:
STATE COMPENSATION FUND
ARIZONA DEPARTMENT OF LIQUOR LICENSES AND CONTROL
ARIZONA SPORTS AND TOURISM AUTHORITY
Minutes of Interim Meeting
Wednesday, November 4, 2009
House Hearing Room 5 -- 9:00 a.m.
Co-Chairman Hendrix called the meeting to order at 9:11 a.m. and attendance was noted by the secretary.
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Senator Barbara Leff, Co-Chairman |
Representative Laurin Hendrix, Co-Chairman |
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Senator Richard Miranda |
Representative Chad Campbell |
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Senator Thayer Verschoor |
Representative Rich Crandall |
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Representative Robert Meza |
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Representative Michele Reagan |
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Senator Carolyn Allen |
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Senator Ken Cheuvront |
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Co-Chairman Hendrix welcomed everyone to the meeting and stated that the reviews would be conducted in the following order:
State Compensation Fund
Shan Hayes, Office of the Auditor General, explained that she is presenting the results of a performance audit and sunset review of the State Compensation Fund (Fund) that was issued in April of this year (Attachment 1). She explained that the Fund operates like an insurance company. All employers in the state must obtain workers’ compensation insurance and the Fund is the largest provider in the state, covering over a million employees who work for over 55,000 Arizona employers. The Fund is allowed to provide insurance only to Arizona employers. Statute requires the Fund to be self-supporting and it receives no general fund support. Its revenues come mainly from the premiums employers pay to have the insurance as well as from some investment income. If a worker is injured on the job, the Fund pays the medical expenses and a portion of lost wages if the worker is unable to return to work due to the injury.
Ms. Hayes’ audit showed that the State Compensation Fund should continue its efforts to improve in two areas: expense to premium ratio and claims management practices. She stated that risk assessment can help in both areas.
Discussion ensued about variances and the statutes dealing with employer risk and deviations from filed workers’ compensation rates.
Representative Crandall asked about recent legislation dealing with lump-sum settlements; he was told that the bill did not pass.
Ms. Hayes informed the Members that the Fund does have a provider network which includes 70 of Arizona’s 98 licensed hospitals.
Ms. Hayes explained some of the problems associated with claims management.
Co-Chairman Leff inquired, if the Fund is independent of state government, why is it subject to sunset provisions. Ms. Hayes replied that the Fund is independent in some ways, but in others it does have a connection to state government: statute requires the sunset review, the Board of Directors is appointed by the Governor, its employees are enrolled in the state retirement system, and its budget is reviewed by the Joint Legislative Budget Committee (JLBC).
In response to questions, Ms. Hayes stated that the Fund is not a “last resort” for employers, but it does provide a large portion of insurance. It has set up a program to improve the safety records of some employers who must pay a premium for being in an assigned risk pool.
Rick DeGraw, Chief of Staff, SCF Arizona, stated that his company has worked closely with the Auditor General’s Office and agrees with its recommendations. He added that in many cases SCF Arizona has already implemented recommended changes and improvements.
Mr. DeGraw explained that the audit was done in a different economic time. SCF Arizona did cover one million employees, but that number is now 600,000. The number of employers covered was 55,000, but is now 37,000 businesses. SCF Arizona is reducing operational costs and is lowering its cost ratio. It is the state’s largest provider of workers’ compensation insurance and is tied to the state by statute: the Board is appointed by the Governor, its employees are covered by the state retirement system, it has sunset provisions, its budget is reviewed by the Joint Legislative Budget Committee (JLBC) every two years, and it is restricted to providing insurance only to Arizona workers.
Mr. DeGraw stated that SCF Arizona does try to price its insurance based on risk and is committed to the safety of employees. Because insurance companies are limited to charging one rate, SCF Arizona has many subsidiaries to handle the different risk pools and to allow companies without good safety records to pay more in premiums to a subsidiary to obtain insurance, then improve their safety, then move to lower premium rates.
Discussion ensued about the use of subsidiaries and the assignment of employers to those subsidiaries with their differing premium rates. Mr. DeGraw stated that they are working to expand provider network in order to further restrain costs and improve safety. He stressed that while other insurers left the state, SCF Arizona has remained in Arizona and “stuck it out” during difficult economic times.
Co-Chairman Hendrix stated that the National Council on Compensation Insurance (NCCI) evaluates most of the states’ premium rates and he asked if the subsidiaries that make up SCF Arizona affect all insurance premiums when premium assignments are made. Discussion ensued on this topic.
In response to a question by Co-Chairman Leff, Mr. DeGraw assured the Members that each of the subsidiaries of SCF Arizona are separate entities with separate funds. He added that, with 343 companies providing workers’ compensation in Arizona, no one is kept out of the marketplace.
Representative Meza asked about the effects of the recent stock market changes on SCF Arizona. Mr. DeGraw stated that, as an insurance company, SCF Arizona is conservative and has invested conservatively, so was not greatly affected by the market changes.
There was some discussion about advertising on the part of insurance companies.
Co-Chairman Leff moved that the Senate Commerce and Economic Development and House Commerce Committee of Reference recommend the continuation of the State Compensation Fund for ten years. The motion carried by a roll call vote of 8-0-0-2 (Attachment 2).
Arizona Sports and Tourism Authority
Dale Chapman, Office of the Auditor General, explained the results of his March 2009 audit (Attachment 3). Overall he found that the Arizona Sports and Tourism Authority (STA) should continue to address its financial situation and to improve its oversight of the facility manager. The STA’s responsibilities involved constructing a multipurpose facility and now operating that facility, which is called the University of Phoenix Stadium. The STA also distributes monies to retire debt from the bonds issued to construct the facility and for other spending, the ordered priorities for which are listed on page 4 of Attachment 3.
Representative Crandall asked which priorities are required by statute and which are optional, and how far down that list STA has to go. Mr. Chapman said that the following priorities are statutorily required:
Mr. Chapman explained that the STA receives revenues from a variety of sources including a tax on hotel beds and car rentals, income taxes from Arizona Cardinals employees, and sales tax and revenue from events. Discussion ensued about collecting income taxes from employees of visiting National Football League (NFL) teams.
Mr. Chapman gave a brief history of the facility, which opened in August of 2006, and both the Arizona Cardinals and the Fiesta Bowl have agreements with the STA to play games there for 30 years. He explained that the STA has had operating deficits since its inception, as revenue is not sufficient to pay the lower priorities of operating costs and to accumulate required reserves. He added that the projected shortfall through FY 2014 is $29 million.
Discussion ensued about operating cash flow, funding of the highest priorities, and annual required funding of the reserve accounts (youth and amateur sports, operations, and capital repair and replacement) where revenue is insufficient. Co-Chairman Hendrix explained that an NFL income tax has not been received and the budget gap had been funded by the Legislature until 2007. Representative Crandall commented that even the Super Bowl did not produce a positive cash flow for the facility. Co-Chairman Leff commented that although the dollars may have been collected, they were not distributed properly to the operating costs. Tourism revenues have declined and expenses have increased, stated Mr. Chapman.
Mr. Chapman described the duties of the facility manager and explained that the facility has over 50 employees. He recommends a performance-based incentive fee for the manager and the management company. Co-Chairman Leff commented that the funding of operating expenses must occur earlier in the cash flow to the priorities of the STA. Discussion ensued about a thorough investigation of the policies and procedures that the STA uses.
Tom Sadler, President, Arizona Sports and Tourism Authority (STA), explained that STA is a municipal corporation dedicated to enhancing Arizona’s economy and quality of life through the development of professional and amateur sports facilities, the attraction of entertainment, sporting, and business events, and through tourism promotion (Attachment 4). He discussed the statutory flow of funds and the priorities of funding.
Representative Crandall asked if there is sufficient cash to operate until November of 2010. Mr. Sadler replied that he would get the dollar amounts to the Representative later.
Senator Verschoor asked about the NFL income tax pledged to the facility. Mr. Sadler explained that the legislation did not follow the original plan to collect from visiting teams and that the state has collected the funds but has not transferred them to the STA account.
Discussion ensued about the entertainment activities, who determines the charges for concerts and if there is certainty that the stadium will be open for future bookings.
Brad Wright, Chairman, Arizona Sports and Tourism Authority Board of Directors, addressed the Members to state that STA is definitely in business, is investigating funding, and has communicated with the stakeholders.
Co-Chairman Leff asked if an approach could be that the STA changes the percentages of funding rather than the statutorily-set priorities.
Co-Chairman Hendrix stated that the Committee is not required to take a vote on the continuation of the STA.
Co-Chairman Hendrix listed his concerns regarding the STA:
Arizona Department of Liquor Licenses and Control
Dale Chapman, Office of the Auditor General, explained the results of a recent audit on the Arizona Department of Liquor Licenses and Control (DLLC) (Attachment 5). He found that the DLLC is performing well in some areas, but that it should improve its investigations and take stronger action against repeat and serious violators.
He described how regulating the sale of alcohol helps protect the public from the negative effects of misuse and that the DLLC regulates the manufacturing, distribution, and sale of liquor in the State, issuing or renewing more than 15,000 liquor licenses in FY 2008. The DLLC also conducts thousands of investigations annually to ensure that licensees are complying with state liquor laws, and it imposes penalties against licensees who violate these laws.
Additionally, Mr. Chapman observed that DLLC officers did not have well-defined plans for their investigations. Although officer discretion is allowed, some licensees were visited multiple times while others were not visited at all. He stated that the Department does not have accurate and complete data to guide its investigative efforts. He recommended that DLLC implement policies for collecting and analyzing investigative data, including departmental databases with accurately coded investigative information. He also stressed the need for the DLLC to take stronger action against violators.
In response to a question from Senator Verschoor, Mr. Chapman stated that the DLLC officers perform all types of investigative functions, including complaint and covert investigations as well as routine inspections, but that inspections are different from investigations. Discussion ensued about the statutory definition of different violations and Mr. Chapman clarified that any fines collected go into the general fund.
Co-Chairman Hendrix asked for clarification of the mission of the DLLC: whether it is to regulate or to enforce.
Jerry Oliver, Director, Arizona Department of Liquor Licenses and Control (DLLC), addressed the Members to explain that when he and his staff arrived in 2006 the agency had many deficiencies and they agreed wholeheartedly with the recommendations of the Auditor General’s Office at that time. He stressed that the Department has the structure in place to address many of the issues. The DLLC reorganized and streamlined the licensing application process, processing about 12,000 renewals per year with a staff of fewer than ten persons.
Co-Chairman Leff expressed concern about the disproportionate inspection visits.
Tim Black, Deputy Director, Arizona Department of Liquor Licenses and Control (DLLC), replied, explaining that DLLC officers often partner with local law enforcement to go to a licensee because there have been recurring problems or a request was made by law enforcement. He added that the DLLC deals with these issues on a complaint basis and, due to reduced staffing, some establishments may get no visits at all if there have been no complaints.
Co-Chairman Leff opined that there does not seem to be a coordination of which officer goes where and when they go. Mr. Oliver explained that there is no statutory requirement to inspect a licensee, although each licensee must renew every year and there are new licensees each year.
Co-Chairman Hendrix expressed concern about the efficiency of officers who cannot provide a list of where they have been and where they have inspected, often traveling back and forth rather than using some routing efficiency approach. Mr. Oliver replied that the officers, like police officers, do have a beat and will criss-cross that beat as required. He then added that the DLLC is installing a computer system to track inspection dates and results to replace the manual system in use at this time which relies heavily on the memories of the officers.
Co-Chairman Hendrix reiterated his request for clarification of the mission of the DLLC: is it to regulate or to enforce. Mr. Black explained that administrative, licensing, and enforcement tasks are all part of the mission, although licensing is the first priority and enforcement is second. Mr. Oliver added that training is also required by statute.
Co-Chairman Hendrix asked how DLLC uses rule-making in the training of servers, particularly carding to prevent underage drinking. Mr. Oliver replied that the DLLC trains managers and supervisors and ensures that those people train their employees via a two-hour basic training course in a classroom.
Co-Chairman Hendrix expressed concern about where statute stops and rule-making begins. He stated that the statute is in many cases too broad and that rules must be used. Discussion ensued about how to judge circumstances of bar (on-premise) or liquor store (off-premise) licenses, since a bar license is cheaper than a liquor store license.
Pearlette J. Ramos, Administration, Arizona Department of Liquor Licenses and Control, explained to the Committee that with respect to licensing, the DLLC looks at the primary purpose of the establishment. She referred the Members to the definition section in A.R.S. Title 4 and explained that DLLC has drafted rules to clarify the statute and met with stakeholders to finalize these rules. She concurred that there are gaps in the statute.
Representative Reagan stated that she is also concerned about the ambiguity in the law and that it needs to be fair and consistent as applied to all establishments.
Co-Chairman Hendrix asked the status of the DLLC policy guidelines and categories of violations. Mr. Oliver assured the Members that both have been revised and completed.
Co-Chairman Leff stated that, since a quorum is no longer present, the Committee will reconvene to make its recommendation when a quorum can be achieved.
Without objection, the meeting adjourned at 12:27 p.m.
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Jane Dooley, Committee Secretary
November 18, 2009
(Original minutes, attachments and audio on file in the Office of the Chief Clerk; video archives available at http://www.azleg.gov)
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COR - SENATE CED AND HOUSE COM
November 4, 2009
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