By Ron VandenBoom
Local Republican and Democratic party officials disagree over whether a maximum of 25 percent of Montana's Workers' Compensation Fund should be allowed to be invested in private corporate capital stock.
Brad Lotton, chairman of the Hill County Republican Central Committee and Rep. Ray Peck, D-Havre, stand on different sides of this ongoing issue.
Constitutional Amendment 34 will be one of five ballot issues voters will decide when they go to the polls in November.
The Amendment would change Montana's constitution to allow a maximum of 25 percent of the fund to be invested in private corporate capital stock. Like pension funds, workers' compensation investments would be managed by the State Board of Investments in accordance with recognized standards of financial management.
Brad Lotton, chairman of the Hill County Republican Central Committee said Wednesday that he favors the proposal.
"You've got a fund here that is not being managed to the greatest efficiency," Lotton said.
Lotton said he believes the 25 percent figure is modest and that 75 percent of the fund would still be invested in bonds and CDs. But he added that the rate of return on these more traditional investments is often less than the rate of inflation and ultimately costs the taxpayers money.
"If they (Workers' Compensation Fund) had been able to invest just 20 percent of their assets between January, 1995, and Jan 1, 2000, they would have made $100 million in earnings," he said.
Lotton said he obtained his figures from the Secretary of State's office.
He added that he feels it's ironic that the Democrats would throw away a proposal that could make the fund earn $20 million a year while at the same time rejecting the inheritance tax referendum that will cost taxpayers $12 million.
Lotton said his own business (Lotton Construction) uses a private insurance carrier instead of Workers' Compensation. He maintains that he pays about 35 percent less in premiums annually than what State Workers' Compensation charges and receives many extra benefits.
He lists employee safety training classes, reduced rates for observing safety standards, and refunds at the end of the year if he has a safe record as some examples of benefits. He also claims his private carrier will work with him, if there is an injury, to insure it will not happen again.
"If Montana is going to stay in the insurance business it should be managed like a private company," Lotton said.
Lotton suggests the extra money earned by Workers' Compensation might be used to implement some of the features private carriers already have.
"Voting for the amendment is a vote for proper management and a vote against bureaucracy," Lotton said.
Peck disagrees with Lotton's assessment of Workers' Compensation, saying he doesn't believe that private carriers can offer insurance as cheaply as the state, and suggests that with recent changes, the fund already is "quasi-private."
"It has much more freedom than it used to have," Peck said, noting that many of the safety programs Lotton talks about are also offered by Workers' Compensation.
However, investing funds in the stock market is one freedom the fund doesn't currently have.
"It puzzles me why there is such a rush to get public funds into the stock market," Peck said. "I'm not so sure that their motives are entirely honorable."
Peck did not elaborate on what he meant by "entirely honorable," but he did indicate that he did not have the same level of trust in the stock market approach to making money that others seem to have.
"Investment is not a science that is predictable," Peck said. "And to turn the fund over to the stock market now might not be wise."
Peck said the Montana Board of Investments operates from what is called "the prudent man rule" that basically says the board will exercise prudence in making its investments. Traditionally that has meant secure CD and bond investments with a lower rate of return but far less volatility.
Peck noted Montana's inability to predict the level of claims coming out of the fund could lead to problems because reserve funds need to be "quite fluid."
"If you have to go into the reserves and sell off stock at a time when the stock is low, you're going to lose money," he said. "If that happens, who picks up the shortfall you have to go back to the people."