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IRS may hold key to retooling Comp Fund

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With a Nov. 1 deadline looming, lawmakers will have to do something about the state Workers Compensation Fund. But nobody knows yet what that will be.

Everything is on hold pending a ruling by the Internal Revenue Service on whether the fund could be privatized and still retain its tax-exempt status. And if it is privatized, how much should Utah taxpayers be compensated, the $50 million suggested by one consultant or the $288 million to $470 million by others?

Plenty of opinions are floating around, and lawmakers on Wednesday heard several hours of additional testimony from those in favor of and opposed to privatization. More witnesses are likely at the Oct. 15 meeting of the Business and Labor Committee, which is expected to occur just after the IRS makes its ruling.

Based on the conditions outlined in that ruling, Sen. Curt Bramble, R-Provo, says he has already drafted legislation that could be tweaked in time for an Oct. 30-31 special legislative session.

Fund executives are pushing for privatization of the fund so they can retain the $30 million in premiums the fund's for-profit subsidiary writes for Idaho customers. A judge there has said the fund is too closely associated with Utah and therefore operates as a foreign government unfairly competing with private enterprise.

The judge has given the state until Nov. 1 to resolve the issue.

Legislation earlier this year would have removed the governor's power to appoint the WCF board of directors, something fund executives believed would have allowed the fund to "mutualize" and retain its federal tax-exempt status and its out-of-state business. That bill did not pass.

The Utah Taxpayers Association and the Utah Business Coalition have weighed in in favor of privatization, whereas Gov. Mike Leavitt opposes any changes to the fund, which serves as the "carrier of last resort" for employees and employers who can't get workers compensation insurance elsewhere.

Leavitt, a former insurance executive himself, does not believe WCF would be allowed to keep its tax-exempt status if it becomes a mutual insurance company; Bramble and fund executives believe they will get a favorable IRS ruling.

On Wednesday, state Treasurer Ed Alter told the committee "taxpayers have a right to demand full value, and it's a lot more than $50 million." The state's share is somewhere between $288 million and $470 million, he said.

Alter also questioned the wisdom of selling off the WCF considering it has worked well as a carrier of last resort since 1917.

"What is fair about creating a private-sector entity that is tax exempt and everyone else is taxable?" he said.

State Auditor Auston Johnson also told the committee that the WCF has not been cooperative in

his efforts to audit the fund, as is required by law prior to the sale of a quasi-governmental entity.

Johnson said fund executives refused to provide documentation to his office of what information they sent to the IRS in support of retaining their tax exemption, even though they gave it to Bramble. (Bramble insists he signed a confidentiality agreement with WCF but needed the information in order to write the legislation.)

E-mail: spang@desnews.com