Not that $200 million was anything to scoff at, but now we learn that a potential deal with Pinnacol Assurance could net the state much more than originally thoughtup to $174 million more.
Does that sweeten the deal enough to push the state toward granting the quasi-governmental agency nearly full autonomy? Perhaps.
An analysis by financial services firm Morgan Stanley indicates Pinnacol is worth as much as $374 million to the state. That’s nearly twice the amount the state-chartered workers’ compensation insurance fund originally offered. By contrast, the tax exemptions that have caused so much consternation (see today’s other editorial) are expected to net only an additional $102.3 million next year.
We have urged Gov. Bill Ritter and state leaders to proceed with caution as they attempt to hammer out a deal with Pinnacol, which has offered the state $200 million. Ritter needs to ensure the agreement isn’t something the state regrets later, when the financial windfall is a memory.
But if the state can strike a deal for up to $374 million, while also showing that sales tax revenues have begun to trend upward, meaning we’re working our way out of the recession, such a deal would make sense. That way, the state would be using the money as a bridge to better times, just as it used last year’s federal stimulus money to patch massive holes in the budget.
However, if the state expects sales tax revenues to continue to lag, backfilling the shortfall with one-time money from Pinnacol only delays next year’s inevitable plunge off a steep cliff.
As compensation for providing workers’ compensation to even the riskiest of clients, Pinnacol doesn’t pay state taxes. The company has said it’s willing to forgo that exemption, except for “residual market” employers, and start paying yearly taxes now estimated at $5.3 million, as well as give the state $200 million over 30 years.
But the new analysis suggests Pinnacol’s value to the state ranges from $331 million to $374 million, and that Pinnacol is capable of making an up-front payment to the state of as much as $264 million.
Pinnacol’s executives are interested in some type of deal because they fear bills this session — and in the future — could alter their business model. Under Pinnacol’s plan, the governor would continue to appoint the majority of Pinnacol’s board and the provider still would be obligated to offer last-resort workers’ compensation coverage.
But a privatized Pinnacol would no longer have to open its records or meetings to the public, which is a concern. It also would be free of the scrutiny of the legislature. Pinnacol’s employees are covered by the Colorado Public Employees’ Retirement Association, and we’re not sure it makes financial sense to allow that going forward.
So while there remain some important issues to discuss, the new figures cast the deal in a much more intriguing light.
