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WCF waits for letter ruling from IRS

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Workers Compensation Fund officials are hopeful a positive letter ruling by the IRS will be the "lightning rod" that sparks lawmakers into action in late October on the issue of privatizing the fund.

On Wednesday, the Utah House GOP caucus voted overwhelmingly to not place the issue before the October special session unless the letter is in hand.

But Lane Summerhays, the fund's chief executive officer, said there is a good chance the letter ruling will be made by Oct. 15, which would give lawmakers plenty of time, and incentive, to act.

The fund, Summerhays said, is facing "the very real deadline of Nov. 1" imposed by Idaho, which has said the fund has to pack up and leave with its $30 million in premiums it writes there, unless statutory changes are made to its organization.

The WCF, a non-profit agency, has for-profit subsidiaries that operate out of Utah. And some states, especially Idaho, say it is unfair for their local workers compensation insurance agencies to compete with an out-of-state firm whose basic assets are held by a non-profit, tax-exempt entity with such close ties to another state government. Idaho officials have given Utah until Nov. 1 to address their concerns.

Utah lawmakers say they won't be rushed to meet an Idaho-imposed deadline and want to be sure they know what the expectations are from the IRS dealing with how the fund will retain its tax exempt status should it privatize.

The fund was originally started by the state as an insurance carrier of last resort for Utah businesses whose employees get hurt on the job. By the late 1980s, lawmakers let it shift away from being purely state-run, and instead set it up as a quasi-public entity with Gov. Mike Leavitt retaining authority to appoint its board of directors.

That appointment power is what fund executives want the state to relinquish, and at one point, the offer on the table was paying the state $50 million in "founder's equity" in exchange for the retooling.

The number is still negotiable, and the WCF has more than $200 million in excess reserves. Some state legislators believe part, or most, of that cash belongs to the state.

Summerhays, who says he is fairly confident the IRS will issue a ruling favorable to privatization of the fund, said additional changes have been worked into proposed legislation to ensure the fund will continue to act as the carrier of last resort.

"The bill has been changed to meet the concerns of various legislators and regulators who believe the federal tax exemption should be preserved," he said.

Specifically, the proposal would grant additional oversight to the state insurance commissioner to make sure the fund is doing what it should to maintain that exemption.

What was once a hot-button issue for Leavitt, however, has dropped off his radar screen, with the governor reaching the conclusion that the fund should stay as is.

Summerhays said it will be impossible to maintain the fund's rates for employers, which are the second-lowest in the nation, if it loses its ability to write business out of state.

E-mail: amyjoi@desnews.com