ARIZONA STATE SENATE

Forty-seventh Legislature, Second Regular Session

FACT SHEET FOR H.B. 2209

~~technical correction; administrative procedure; exemptions~~

(NOW: administrative procedures; exemptions)

Purpose

Exempts the State Compensation Fund from the Arizona Administrative Procedures Act.

Background

State Compensation Fund (SCF)

The SCF was created in 1925 by the Legislature as part of Arizona’s original Workman’s Compensation Act (Act). The Act provided start-up capital of $100,000 for the SCF and required the SCF to repay the amount. The capital was fully repaid by 1938. From 1925 through 1968, the Industrial Commission of Arizona (ICA) administered the SCF. Beginning in 1969, the SCF was removed from the ICA, becoming a separate entity.

The SCF is Arizona’s largest workers’ compensation insurance carrier, covering approximately 54,000 employers. The SCF is a nonprofit agency. All income is derived from policyholder’s premiums and investments. Income that is not used to provide benefits to injured workers or for operating expenses is returned to policyholders in the form of dividends. The SCF is required to submit its budget for the two ensuing calendar years October 1 of each even-numbered year for review and approval by the Joint Legislative Budget Committee.

The SCF is under the direct supervision of a Board of Directors, which consists of five members appointed by the Governor for staggered five-year terms. The members are required to be a policyholder or an employee of a policyholder of the SCF. Additionally, the Governor annually appoints the chairman of the Board from among the members. The Board is required to appoint a manager of the SCF who is responsible for the SCF’s daily operations. By Board resolution, the SCF voluntarily operates as the “carrier of last resort.” The SCF will insure any Arizona business providing that it pays the appropriate premium and has not committed fraud against an insurance company

Arizona Administrative Procedures Act

The primary purpose of rulemaking is to give notice to the public of the substantive or procedural requirements that a state agency, board or commission (agency) has established for activities falling within its statutory authority. The Arizona Administrative Procedures Act (APA) provides procedures for agency rulemaking and handling appeals of agency decisions. The APA contains the Governor’s Regulatory Review Council, which reviews proposed agency rules and may approve or return the proposed rules to the agency, and the Office of Administrative Hearings, which hears cases regarding the appeal of an agency’s administrative procedures.

An agency may make rules only if the Legislature has given it authority to do so. Unless exempt from rulemaking procedures, a rule is valid only if it is made in substantial compliance with the APA or other statutory procedures applicable to the agency. These requirements are designed to ensure adequate public participation in the rulemaking process.

In a recent Superior Court case, Canyon Ambulatory Surgery Center v. Arizona State Compensation Fund, the Court found that the SCF, under the circumstance of the case, is not subject to the APA. H.B. 2209 exempts the SCF from the APA.

There is no anticipated fiscal impact to the state General Fund associated with this measure.

Provisions

1. Exempts the SCF from the APA.

2. Makes technical changes.

3. Becomes effective on the general effective date.

House Action

COM 2/15/06 DPA/SE 7-0-0-2

3^rd Read 2/28/06 31-22-7-0

Prepared by Senate Research

March 20, 2006

BP/ac