Don't rush to crack SAIF.

Byline: The Register-Guard

SAIF Corp., the state-owned workers' compensation insurance company, is one of the last, and perhaps the fattest, piggy banks remaining on Oregon's shelf. It's reasonable to ask whether it contains any money that might help the state close a projected $2.5 billion shortfall in the 2003-05 budget. But before the Legislature claims any SAIF funds for public use, or even sells the company to a private buyer, it must make certain that it's on solid legal ground.

SAIF provides workers' compensation insurance to 40,000 Oregon employers, including the state and other government agencies. In competition with private insurers, it covers about half of the state's policyholders. Its competitors have long complained that SAIF's special status gives it unfair tax and political advantages. The company is often criticized for maintaining excess reserves, but SAIF consistently claims its reserves are no larger than necessary to pay future claims.

Economist William Connerly released a study last month for the Cascade Policy Institute, a free-market-oriented think tank in Portland, concluding that the state should get out of the insurance business and sell SAIF. Connerly estimated that the company might be worth as much as $2 billion. He also calculated that SAIF has between $200 million and $500 million in excess reserves. Such numbers are certain to grab legislators' attention.

Whether SAIF's reserves are beyond adequate levels is an extremely complicated question. It can be answered only by making assumptions about how many injured workers will file claims, the severity of their injuries, the rate of inflation in medical costs, the prospect of breakthroughs in medical treatment or rehabilitation, the rate of return on invested funds and a variety of other factors. The Legislature would need to obtain a neutral and expert opinion before it could form a judgment of whether SAIF's reserve policies are based on overly conservative assumptions.

Even if legislators felt confident in concluding that SAIF has excess reserves, it's not certain that the state would be entitled to claim them. SAIF's policyholders could plausibly argue that any surplus belongs to them, and should be returned in the form of a dividend, a reduction in premiums or both. The state took $81 million from SAIF 20 years ago, but was later forced to repay the money with interest. The Legislature passed a law giving the state the right to take excess funds from the company, but the law hasn't been tested.

If the state can tap SAIF for a significant sum, the Legislature would have to ensure that the money was spent wisely. Any excess reserves have built up over many years. Taking the entire amount and spending it all in a single budget period would be a further act of profligacy by lawmakers who have shown a disturbing willingness to liquidate the public's savings. Spending the proceeds from a sale of SAIF would be even worse. If Connerly is right about the company's worth, selling SAIF could yield enough money to fund a permanent rainy-day reserve for the state.

Legislators also would have to consider the effects of any action on the price of workers' compensation insurance in Oregon and on the security of workers' protection in case of an on-the-job accident. SAIF has provided good insurance at affordable rates since the workers' compensation system was overhauled in the late 1980s. The Legislature must avoid actions that would weaken the system in ways that harm employers, workers or both.

With these cautions in mind, the Legislature ought to take a look at SAIF. Indeed, the company ought to be under permanent scrutiny - any large, state-owned asset must be monitored to ensure that it's being managed in the public's interest. SAIF's reserve policies deserve a periodic review, and even the possibility of a sale should be explored. But there's a great danger that the Legislature, in its desperation to balance the budget without drastic program cuts or tax increases, will rush to grab millions from SAIF and end up doing something illegal, unfair or destructive.