EMPLOYER Winter 2004 • Vol. 3, No. 1

(Please see page 3)

What’s Inside

Common SenseA Pox on Both

Your Houses by Jon L. Shebel

A Cure for What Ails by Jacquelyn Horkan

Battling theAnti-Reform party

by Jacquelyn Horkan

Written by Water by Jacquelyn Horkan

Issue Roundup by Jacquelyn Horkan

AIF’s Team ofLobbyists

A publication of ssociated Industries of Florida Service Corporation

2004 – The Year of InitiativeReform?

P o l i t i c s

By Doug S. Bailey

Florida’s citizen-initiative process hasbeen at the center of controversy fornearly a decade. There are those whobelieve that the public interest can best bediscovered through a deliberative process byinformed and enlightened representatives.Others believe that direct democracy isessential in giving voice to the people’sopposition to the elite in business, politics,and in culture.

During the 2004 Legislative Session,lawmakers will consider reforms aimed atmaking the state’s citizen-initiative processmore rigorous, thus protecting the sanctityand supremacy of the constitution and lessen-ing the potential for the ratification of costlyand socially irresponsible amendments.

Amending the constitution to address theproblems with the current initiative process,however, will be a politically challengingendeavor. Any initiative reforms agreedupon by the Legislature will require popularapproval during the next general election.

Ultimately, the fate of the reform effortwill depend on those very citizens whoseability to responsibly amend the constitutionis at the crux of the challenge.

Lawmakers will need to identify reformproposals that are both meaningful andpolitically viable. Otherwise, the initiativereform movement of 2004 will go down insmoke and it may take another ten years anda few more special-interest boondogglesbefore we get this chance again.

Florida’s Hyperactive ConstitutionFlorida’s hyperactive constitution has been

amended, via the citizen initiative process, 16times in 30 years, but the trends of the lastdecade are most alarming. After an auspi-cious beginning in 1976, the use of the popu-lar initiative decreased such that citizeninitiatives were entirely absent from stateballots from 1982 to 1992. From 1992 to 2002,however, the use of the popular initiative hasincreased substantially. During an averageelection Florida voters are asked to considerabout six initiatives per year and they areapproving nearly 87 percent — well above thenational popular-initiative approval rate of 40percent. In the last two election cycles (2000and 2002) voters approved 100 percent of thepopular initiatives that appeared on the ballots.

There is too much money and special-interest-group influence in the state’s initia-tive process. Voters are often under-informedand, as a result, are unable to make respon-sible decisions in the voting booth. Minorityrights are potentially at risk, and harmfulfiscal and social implications are often leftunexamined.

Because of Florida’s irresponsible citizen-initiative process, careful policy analysis andthoughtful, honest debate has been trumpedby bumper stickers, sound bites, interest-group endorsements, and slick 30-secondtelevision advertisements.

This is not the way our government wasdesigned to work. Direct democracy aspracticed in Florida’s citizen initiative processcontradicts the principles of our republican

C o m m o n S e n s e

2 Employer Advocate • Winter 2004

A Pox on BothYour Houses

EMPLOYER

Published byAssociated Industries

of Florida ServiceCorporation to inform

readers about issuespertinent to Florida’sbusiness community.

© 2004. All rightsreserved.

PUBLISHERJon L. Shebel

ASSOCIATE PUBLISHERStephen B. Trickey

EDITORJacquelyn Horkan

DESIGNERJ. Gregory Vowell

EDITORIAL OFFICES516 North Adams St.

Post Office Box 784Tallahassee, FL

32302-0784Phone: (850) 224-7173

Fax: (850) 224-6532E-mail: aif@aif.com

By Jon L. Shebel, Publisher

Forget the presidential election, a tightbudget, and education. The big issuethis year is constitutional amendments.Okay, that might be a bit of an exaggera-

tion, but Florida employers ignore the peti-tion-drive plague at their own risk. Thosefriendly people at your local grocery storewho are collecting signatures to put a consti-tutional amendment on the ballot are but thesmiling face of a beast that threatens the veryroot of representative government.

Simply put, Florida’s constitution is tooeasily changed, leaving it open to manipula-tion by special interests, which subverts theprocess of deliberation over public policydecisions and threatens the business commu-nity with the enactment of economicallydestructive programs and mandates.

This is a new phenomena, created by aclose cadre of consultants and experts whohave used their past failures to build an entireindustry aimed solely at the passage or defeatof constitutional amendments. This political-industrial complex has devised strategiesdesigned to trick unsuspecting citizens intoapproving measures they would otherwisequickly reject.

Citizens should be aware of the use of thisstrategy by two groups called Floridains forPatient Protection and Citizens for a FairShare.

Floridians for Patient Protection is chairedby Scott Carruthers, who is also executivedirector of the Academy of Florida TrialLawyers, while the fair-share crowd gets its

leadership from Sandra Mortham, the execu-tive vice president and CEO of the FloridaMedical Association. The doctors and thelawyers are engaged in a game of constitu-tional chicken. Both are pursuing passage ofcitizen initiatives that strike deep at the heartof the other’s wallet.

The trial-lawyer group is collecting signa-tures for three anti-doctor initiatives. The firstwould effectively force doctors to charge alltheir patients the same fees they get fromMedicaid, which are deliberately set belowcost to artificially deflate the cost to govern-ment. The second would make public alladverse incident reports against doctors andhospitals. While this may sound refreshing, itwould in fact prohibit the open reporting ofthese incidents, which is crucial to improvingpatient safety. The third and final amendmentwould take away the license of any doctor whocommitted three or more acts of medicalmalpractice. This probably would do little toimprove the health of Florida patients, but itwould severely restrict access to physicians inhigh-risk specialties, such as obstetricians, whoare the frequent targets of malpractice litigation.

The doctors’ one amendment is perhaps themost draconian. It would limit plaintiff attorneyfees in medical-malpractice litigation to 30percent of the first $250,000 of damagesreceived by the claimant, and 10 percent ofdamages in excess of $250,000. I will argue ashard as anyone — and harder than most — forthe need to place limits on the runaway civillitigation system, but this proposal goes too far.

It does not belong in the constitution, itignores the recent medical-liability reforms,and it stinks of retribution.

AIF has written to every M.D. and D.O.licensed in the state of Florida, asking them towithdraw their support of the Florida Medi-cal Association’s amendments. The businesscommunity has stood by the medical commu-nity in the past and will do so again, but onlywhen the effort promises constructive results.Nothing positive can come from this game ofconstitutional brinkmanship. ■

Jon L. Shebel is president and CEO ofAssociated Industries of Floridaand affiliated companies(e-mail: jshebel@aif.com).

Employer Advocate • Winter 2004 3

Initiative reform

creates an opportu-

nity for a great

public debate on

the theories of

republicanism and

the hazards of

minority rule.

P o l i t i c s

(Continued from page 1)

form of government. Our founders considered— and rejected — direct democracy models ofgovernance. They chose instead to create arepresentative government in which voterswould elect individuals to pursue and repre-sent the best interests of the people.

If Floridians are to govern themselvesdirectly through the initiative, we must developa more fiscally and socially responsible processthat protects the supremacy and sanctity of ourconstitutional form of government.

Initiative Reform ModelsReform of the initiative process will pro-

ceed along both statutory and constitutionalavenues.

Though a myriad of reform concepts willbe proposed and debated, expect the follow-ing three concepts to be the focus and pri-mary objectives of the 2004 initiative reformmovement.

Ratification-threshold increase: A joint resolu-tion raising the ratification threshold ofconstitutional amendments from a simplemajority to between three-fifths and two-thirds will be the linchpin of all the reformproposals advanced by the Legislature.

Raising the bar for ratification is anexpression by the legislative leadership of adesire to make it more difficult to amend theconstitution than it is to amend statutes. Aratification-threshold increase would mostlikely apply to all amendments placed on theballot, not just those proposed by citizeninitiative.

When applied to the 2002 citizen-initiativeelection results, a three-fifths or 60-percentratification threshold would have caused thedefeat of the universal pre-K initiative (59.2percent), the class-size initiative (52.4 percent)and the pregnant-pig initiative (54.8 percent).In 2000, a 60-percent requirement would havedefeated the high-speed-rail initiative, whichonly collected 52.7 percent of the vote.

Judicial filter: Another popular reform ideatakes the shape of joint resolution to modifythe parameters of the Supreme Court reviewof amendments, authorizing the court to

determine the appropriateness of a ballotinitiative for inclusion in the constitution.Currently, the court’s review is limited toevaluating whether the amendment meets thesingle-subject requirement and whether theballot title and summary accurately explainthe amendment.

An expanded role for the judiciary wouldarguably eliminate those initiatives thatotherwise would be best left to the statutes.

New amendment filing deadline: Currentlyamendments must be filed with the custodianof state records 91 days prior to the generalelection. A joint resolution will be advancedthat will move that filing deadline so as toallow eight to ten months for consideration ofproposed amendments.

A February 1 deadline would arguablyallow for a more deliberative and thoughtfulanalysis of the fiscal and social implications ofa proposed constitutional amendment. Theinterim period between February 1 and aNovember election would also allow forlegislative preemption, agency implementa-tion and fiscal analysis, and thoughtfuldebate and reflection.

Political RealityUntil now, most of the discussion surround-

ing initiative reform has been limited to thechambers of academia and government.Outside of political clubs, think tanks, andlegislative committees, there is hardly agroundswell of interest in the political philoso-phies of the Founding Fathers or in the eventsleading to the various populist movements ofthe late 19th and early 20th centuries.

Initiative reform creates an opportunity fora great public debate on the theories of repub-licanism and the hazards of minority rule.We as the business community are confrontedwith an alluring task: engaging the public inan educational debate on the benefits ofrepresentative forms of government versus theconsequences of direct democracy.

Advancing initiative reform will be one ofthe most significant propositions this legisla-ture will consider during the 2004 Session.However, the complexities of two ideologi-cally unaligned legislative bodies and their

(Please see back page)

H e a l t h C a r e

4 Employer Advocate • Winter 2004

Florida health

officials estimate

that 2.8 million

Floridians under

the age of 65 lack

insurance.

A Cure for What by Jacquelyn Horkan, Editor

Access to affordable health coverage hasbeen a recurring dilemma, both nationally and in our state, for the lasttwo decades, and the problem has intensifiedin recent years.

Florida employers were hit with double-digit premium increases in 2003, and arecently published Towers Perrin surveypredicts more of the same in 2004. These costincreases have contributed to the erosion ofemployer-sponsored health-insurance cover-age. The Florida Office of Insurance Regula-tion estimates that enrollment in small grouphealth-insurance plans dropped by 13.2percent between 2001 and 2002, while largegroup coverage decreased by 6.1 percentduring the same period. This trend is trou-bling because employers are responsible forproviding health benefits to 61 percent ofinsured residents in the state.

Surging health-care costs result in across-the-board increases in insurance costs, whichforces more people to drop their coverage.Florida health officials estimate that 2.8million Floridians under the age of 65 lackinsurance.

National statistics about the numbers ofuninsured are sketchy. The Institute of Medicinecites a commonly used estimate that 43 millionAmericans are uninsured for an entire year andmany more go without for short periods oftime. The Congressional Budget Office, on theother hand, discredits that amount.

According to the CBO’s data analysis,somewhere between 21 million and 31 millionpeople were uninsured for the entire year in1998, the most recent year for which reliablecomparative data were available. Givenhistorical trends, the budget office says, suchfigures haven’t changed substantially since1998. Furthermore, the CBO estimates that, atany point in time during the year, about 40million people were uninsured; and nearly 60

(Please see page 7)

Employer Advocate • Winter 2004 5

Ails Taking Health CareOut for a Test DriveConsumer-driven health care is an option more employers are embracing in order to continue providing health insurancebenefits to their employees. This newly developing approach

relies on savings accounts, funded through pre-tax dollars,

combined with high-deductible health-insurance plans. The

formula lowers premiums for employers and employees, gives

employees greater discretion over their health-care resources, and

puts more spending decisions in the hands of patients.

A key to the success of consumer-driven health care, however,

is access to meaningful data on health-care costs and quality.

Through the Comprehensive Health Information Systems Advi-

sory Council, Florida already collects information on the state’s

health care delivery and financing systems. Data analysis is

provided on costs and financing, including trends in health-care

prices, costs, and the sources of payment.

Contained among the recommendations of the governor’s task

force and the Farkas committee are new measures to expand the

information available to consumers of health care via the Internet,

including cost comparisons for hospitals, doctors, and procedures.

Patients would also gain access to quality data, such as a

physician’s success rate on a certain procedure.

Unlike other major purchases a consumer may make, such as a

car or a house or groceries, consumers are limited in their ability

to make educated decisions regarding plans of treatment or the

selection of a provider. While technological innovations and

changes in consumer attitudes have spurred the creation of a vast

network on information on most large purchases, health care has

long been the domain of third-party payers, thereby removing

the link between cost and quality.

In health care as in other markets, an educated consuming

public increases healthy competition, which reduces costs and

— in the case of health care — saves lives. ■

Unlike other major

purchases a

consumer may

make, such as a

car or a house or

groceries, consumers

are limited in their

ability to make

educated decisions

about health care.

An HMO civil

remedy would

eventually

aggravate an

insurance crisis

lawmakers are

now seeking

to avoid.

6 Employer Advocate • Winter 2004

H e a l t h C a r e

Any Willing Provider“Any willing provider” legislation would

force HMOs to pay for treatment providedby any provider willing to accept the feesnegotiated with the health plan’s networkof physicians. What sounds reasonable, how-ever, isn’t. Allowing any doctor to treat a sub-scriber eliminates the HMO’s negotiatingadvantage, which will inevitably result inhigher costs of health care without anyincrease in quality.

HMO Civil RemedyThis proposal would expand the rights

of HMO subscribers to sue a health plan when-ever it declined to authorize payment for a ser-vice or treatment ordered by a doctor withinthe HMO’s provider network. In addition, subscrib-ers could collect non-economic and punitivedamages, as well as attorney fees.

The consequences of providing this latitudeto litigious subscribers and their attorneysshould be obvious. To avoid lawsuit harass-ment, health plans would approve paymentof any service even if it wasn’t covered, wasn’tnecessary, or wasn’t even beneficial understandards of practice.

HMO patients already have the right tofile a lawsuit to compel their health plans toprovide either a requested service or reim-bursement for the out-of-pocket fees in-curred in obtaining the treatment. If the pa-tient prevails he can also recover attorneyfees from the HMO. Civil remedy laws merelypad the award by adding non-economic andpunitive damages.

In addition, the state has built an exten-sive system to address grievances by subscrib-ers against their HMOs, which was recentlyexpanded and strengthened by the Legisla-ture. This resolution process helps patientsget the care they need without the lengthy

delays involved in a court trial. It also helpskeep health insurance affordable and avail-able. An HMO civil remedy would do neitherand would eventually aggravate an insurancecrisis lawmakers are now seeking to avoid.

Benefit and Treatment MandatesMandates are state-imposed requirements

on health-insurance providers, which forcepolicyholders to pay for certain benefits andtreatments, whether the policyholder wantsthem or not. The cost of mandates are diffi-cult to quantify but a 2002 study conductedby PriceWaterhouse Coopers suggests thatmandates are responsible for increasing costsby 15 percent.

According to a 2001 study conducted bythe Florida House of Representatives Insur-ance Committee, our state imposes 51 man-dates on health insurers and HMOs, secondonly to Maryland. In 1987, the Legislaturepassed a bill that required submission of asocial and financial impact statement by thesponsor of any proposed mandate. Since thattime 35 of those 51 mandates have been en-acted, mostly without a cost-benefit analy-sis. Although most mandate sponsors ignorethis cost-benefit-analysis requirement, Floridacan no longer ignore the economic facts.

Over the last several years, common man-date proposals have included coverage offertility treatments, birth control, and autism.Recent mandate bills have been met withskepticism by lawmakers educated in thecosts and effects of their decisions. Calculat-ing the costs and benefits of those 51benefits already on the books remains anunfinished task. ■

Jacquelyn Horkan is a freelancewriter in Tallahassee, Florida(e-mail: jhorkan@aif.com).

Battling the Anti-reform Partyby Jacquelyn Horkan, Editor

Even as the Legislature focuses its efforts on expanding access to affordable healthinsurance, it will have to resist the siren call of the anti-reformists who will be pushingmeasures that actually increase costs. Their litany is a familiar one, but here’s a reminderof some of the bad memories they are likely to recall.

AIF members

sign up for the

Daily Brief and

Weekly Update

legislative

reports on AIF’s

Web site

http://aif.com

Employer Advocate • Winter 2004 7

million people were uninsured at some pointduring the year.

An interesting side note to the disparateestimates: In its report the Institute for Medi-cine identifies universal coverage as the mostimportant goal in the health-care debate,something they acknowledge cannot beachieved voluntarily.

Although the extent and precise nature ofthe problem is somewhat unknowable, we doknow that the uninsured can be grouped intothree basic categories: those with short-termgaps in coverage; those who are chronicallyuninsured; and those who, because of poorhealth or serious illness, are uninsurable inthe private market. Recognizing these differ-ences is crucial to reforming the delivery andfinancing of health care in this state. InFlorida 60 percent of uninsured workers lackcoverage because their employers cannotafford the costs of group insurance.

Last summer two panels were convened tostudy the problem. On August 25, 2003 theGovernor’s Task Force on Access to Afford-able Health Insurance was created with 17members, including business people, health-care professionals, consumers, and policyexperts. Eleven days earlier, House SpeakerJohnnie Byrd (R-Plant City) had appointedRep. Frank Farkas (R-St. Petersburg) chair-man of the newly created House SelectCommittee on Affordable Health Care forFloridians. The governor’s task force was co-chaired by Lt. Gov. Toni Jennings and ChiefFinancial Officer Tom Gallagher, both ofwhom, perhaps coincidentally, are top Repub-lican Party prospects to replace Gov. Jeb Bushwhen his second term ends in 2007.

AIF, in a coalition with insurance carriersand other employer groups, tracked the workof the governor’s task force and the selectcommittee chaired by Rep. Farkas, participatedin their meetings, and presented recommenda-tions on possible paths for reform.

The coalition developed a list of 10 objec-tives that informed the group’s work. Theoverriding goal pursued by AIF was to

increase access to affordable care by extend-ing private health insurance to as manyFloridians as possible without jeopardizingthe access that others currently enjoy.

Both panels have issued their recommen-dations for reform. The political musclebehind the two groups guarantees that someaction will be taken during the 2004 session.The question is what will lawmakers do andhow much will they want to spend.

According to AIF health care consultant,Bob Asztalos of Buigas Asztalos & Associates,the reports from the two groups containsimilar policy prescriptions.

“There are some good ideas in both reportsfor employers who can’t afford coverage now,”said Asztalos. “One of the most significantwould relax state mandates on policies, whichwould allow more flexibility in tailoring insur-ance plans to meet the needs of the personbuying the policy.”

While some of the best recommendationsare free, others would require some govern-ment funding. The governor’s task force andthe Farkas committee, for example, bothrecommend establishing a high-risk pool forindividuals who cannot get coverage in theopen market. Creation of such a pool hadbeen a top priority of CFO Gallagher, but hisenthusiasm was tempered by Lt. Gov.Jennings’s insistence that existing govern-ment revenues would have to fund the pool.A tax increase for the high-risk pool wasdeeply opposed by AIF because it wouldincrease the cost of health insurance for otherFloridians, risking their access to care.

Other reforms dependent on governmentrevenues include expanding KidCare, whichuses state and federal funds to providepremium subsidies to low-income children. IfKidCare is to be granted more funding, AIFwill insist that safeguards be put in place tomake sure that parents with health insurancearen’t dropping their coverage in order toreceive subsidized care for their children. ■

Jacquelyn Horkan is a freelancewriter in Tallahassee, Florida(e-mail: jhorkan@aif.com).

(Continued from page 4)

8 Employer Advocate • Winter 2004

G r o w t h M a n a g e m e n t

Each and every

one of the goals

listed in the State

Comprehensive

Plan depends on

a healthy

and growing

economy.

Written byby Jacquelyn Horkan, Editor

AFrench proverb says, “An injury isengraved in metal, but a benefit is written in water.” In Florida, how-ever, benefits and injuries are not written inwater; they are written by water.

Since its earliest days as an undevelopedterritory, mosquito-infested swamps werethe enemy to Floridians, and forward-thinking pioneers tried to drain them andput the land to productive use. Killerhurricanes in the 1920s and 30s turned themarshy tracts into watery graveyards,inspiring even more drainage projects.

Today, however, we recognize that thesemuch-maligned swamps, which we now callwetlands, are essential to ensuring a produc-tive natural environment as well as a reli-able source of clean water. What’s more,in the last 80 years, beginning with thediscovery of saltwater intrusion into St.Petersburg’s municipal wellfields, Florid-ians have come to realize that our state’sabundance of water doesn’t guaranteeprotection against localized shortages of thestuff.

Water wars are nothing new but, here onthe East Coast, they have not simmered withthe threat of violence as they have in thearid West. In Florida, we have plenty ofwater — we just don’t always have it in theright places at the right times.

Since 1972, when the Legislature createdthe five water management districts, watersupply policies have been developed toavoid the parochialism that can result fromtreating water as a local resource. Regionalwater solutions were developed and imple-mented to avoid water wars such as thosethat plagued the Tampa Bay area through-out the 1980s and 1990s. Water was declareda state resource and the ability to use it wasgoverned by consumptive-use permits, awater-allocation system administered by the

water management districts.The idea of government command and

control of water supplies is a relatively newone. It may not be the best economic or publicpolicy but it is an indelible legacy of theprogressive — some might say utopian —instincts of past Legislatures.

Their trust in enlightened elites of theelected and bureaucratic stripe is enshrined inFlorida’s growth management laws and theState Comprehensive Plan, enacted in 1972.The State Comp Plan lists 25 elements, whichhave not changed since 1985, to consider inmanaging growth and development. Listed inorder of priority, the economy ranks at alowly 21, despite the fact that each and everyone of the goals listed in the State Compre-hensive Plan depends on a healthy andgrowing economy.

The tension between development andwater still bubbles beneath the surface andremains essentially unresolved.

In the summer of 2003, the Florida Councilof 100 issued a report claiming that Floridafaced acute water shortages and recom-mended, among other things, revising statelaw to allow the transfer of water acrosspolitical and hydrological boundaries. Thereport met with rejection from almost everypart of the state, water-rich as well as water-hungry.

Bills were introduced in the 2003 Legisla-tive Session to impose new “waterconcurrency” requirements for land-usepermits. Such legislation would have achilling effect on residential and commercialdevelopment in Florida. Moreover, suchlegislation would have created a disincentive

Employer Advocate • Winter 2004 9

We often speak of our fragile natural envi-ronment, but conservation of our ecologi-cal resources depends on protection of anotherfragile system: our economic system, upon whichrelies the conditions of prosperity that underwriteour social priorities.

The Florida Legislature would do well to rec-ognize the importance of economic rights byenacting amendments to the Bert Harris PrivateProperty Rights Act that will fix the sovereign im-munity and statute of limitations glitches, whichare necessary to prevent local governments fromabusing private-property owners‘ rights to usetheir property.

The Harris Act has largely served its purposeof deterring local governments from over-regu-lation of the use of private property. There are afew local governments, however, that continueto defy the Harris Act by challenging every claimin order to limit uses of private property and thenusing litigation as a dilatory tactic to prevent land-owners from receiving compensation. Twosections of the Harris Act must be amended to

prevent local governments from abusingprivate-property owners‘ rights to use theirproperty.

The first issue found in the Harris Act in-volves sovereign immunity. Subsection 13 of theact had been construed by a Miami-Dade Cir-cuit Court judge to prevent all claims for mon-etary damages against local governments. Thisinterpretation nullified the entire Harris Actand rendered it completely meaningless. Un-der this interpretation, a landowner couldnever receive damages under the Harris Act.While this ruling was subsequently overturned,AIF supports amending the act to clarify theact’s limited waiver of sovereign immunity inorder to avoid confusion in other jurisdictions.

The second issue involves the statute of limi-tations found in Subsection 11 of the act. TheAIF-supported amendment eliminates confu-sion by clarifying that when a law or regula-tion is adopted that immediately affects a spe-cific parcel of land, the one-year statute of limi-tations may begin to run upon adoption of theregulation if actual notice is given to the land-owner. In other cases where a law or regula-tion does not immediately affect a specificproperty, the one-year statute of limitationsruns from the time the government takes aspecific action regarding a landowner‘s property.

Amending the Harris Act will clarify that theone-year statute of limitations for bringing aclaim under the act does not begin to run untileither a property owner receives actual noticeof the law or regulation or when a specific ac-tion of the governmental entity affects a par-ticular parcel of real property.

Protection of private property rights is a corevalue upon which this country was founded.The Harris Act provides for redress by propertyowners against state action. Since its enactmentin 1995, the Harris Act has had a deterrent ef-fect on government overreaching. These legis-lative fixes are necessary to ensure the HarrisAct continues to work to protect Florida citi-zens and businesses from government over-regulation. ■

This interpretation

nullified the entire

Harris Act and

rendered it

completely

meaningless.

Securing Property Rights

for governmental entities to properly plan forthe expansion of water resources to meetFlorida’s future needs.

Since water is a state resource, the develop-ment of water supplies is a function of long-term planning by governmental entities.Transferring that responsibility to privatecitizens will harm the state’s economy whileleaving Floridians vulnerable to future watershortages. The Legislature should, however,investigate the creation of incentives forprivate companies to develop and build state-of-the-art facilities, such as desalinationplants, that will help ensure water resourcesthat are adequate for Florida’s future. ■

Jacquelyn Horkan is a freelancewriter in Tallahassee, Florida(e-mail: jhorkan@aif.com).

10 Employer Advocate • Winter 2004

B u s i n e s s R e p o r t

The diversion of

these revenues

is not a new

phenomenon, but it

is an exercise in

fiscal dissipation

that lawmakers

should terminate.

by Jacquelyn Horkan, Editor

Substitute-Communications Services TaxDuring the summer of 2003, the Florida

Department of Revenue (DOR) released itsrule applying the 2001 communications-services tax to substitute-communicationssystems. DOR’s interpretation of the lawapplied the 9.17-percent statewide communi-cations-services tax (plus local taxes ofvarying rates) to a number of commondevices that are used at virtually every placeof business in the state, including mosttelephone systems, computer networks, andwireless dispatch systems.

The tax would be payable on the actualcost of operating and maintaining the system,which DOR defined as including such thingsas depreciation, repair and maintenance costs,and employee salaries and benefits.

The problems with the rule as it wasdeveloped by DOR were manifold but mainlyarose from two defects: the definition of theword “substitute” and the definition of theterm “switched service.”

According to those involved in crafting theoriginal tax bill, the Legislature contemplatedthat a substitute-communications systemwould be taxable if it were a switched systemwith a dealer providing the communicationpath. DOR interpreted it to mean any systemthat allowed communication, including agroup of computers and printers linkedtogether in a home.

This is a deeply complex issue that re-quires a precise blending of tax policy andengineering, adaptable to rapidly changingtechnology, while adhering to the stringentguidelines of statute and the procedures foradopting agency rules. Clearly the ruleviolated legislative intent if only because thecommunications-services tax was intended tobe revenue neutral, while the department’sinterpretation of this portion of the tax wouldprovide a huge revenue boost for state andlocal governments. Ambiguity was written

into the law, however, which left DOR with-out the statutory boundaries to limit the taxfrom the broadest application possible.

With all of the flaws inherent in the ruleDOR subsequently announced that it wouldnot be proceeding with implementation of thetax on substitute-communications systems.Instead, DOR staff has asked the Legislatureto fix the law, by either repealing the lan-guage or redrafting it in a way that eliminatesthe underlying ambiguity.

The language relating to taxation ofsubstitute-communications systems needs toclarify how DOR is to apply the tax, namelyby applying a clear and limited definition ofwhat constitutes a taxable system, namelyone with a switched service wherein thecommunications path is provided by a dealer.If clarity is not possible AIF supports deletingthe language referring to the tax on substitutecommunications services.

Diverting Trust Fund RevenuesIn 2003, the Legislature diverted money

from dedicated trust-fund revenue streams toplug up holes in general revenues. All indica-tions are that the governor and Legislatureintend to pursue that same imprudent fiscalpolicy for FY2004-05.

The diversion of these revenues is not a newphenomenon, but it is an exercise in fiscaldissipation that lawmakers should terminate.Trust-fund revenues typically flow fromsources, such as user fees or taxes, on activitiesthat benefit from the programs they fund.

Last year’s diversion of $200 million fromthe Transportation Trust Fund poses a par-ticular threat to Florida’s economy at a timewhen state leaders are putting so much intoboosting the development of high-payingjobs. According to the Florida Department ofTransportation, every dollar invested inFlorida’s transportation infrastructure yields$5.50 in economic activity. Based upon thatfigure, a $200 million raid amounts to a $1.1billion hit on the prosperity of Florida‘scitizens.

As a general statement of policy, AIFbelieves that trust-fund revenues should not

Issue Roundup

Employer Advocate • Winter 2004 11

To OrderYourCopies,Call (850)224-7173

be diverted for any purpose beyond theiroriginal intent. If a trust fund is accumulatingtoo much revenue or if it no longer serves apriority of the people of Florida, the Legisla-ture should take action to reduce the amountof money that flows into the trust fund or itshould cease to exist. If, however, the trustfund continues to fulfill a primary function ofpublic policy, using those funds for otherpurposes is merely a case of “robbing Peter topay Paul.”

Mold LitigationFlorida property insurance rates already

are among the highest in the nation due tohurricanes, sinkholes, and our unique insur-ance-litigation environment. Florida employ-ers cannot afford a spread of the mold-litigation contagion that has infected Texasand California, which threatens theaffordability and availability of homeownerand commercial property insurance here.

News reports routinely refer to “toxic” or“killer” mold. According to both the Centersfor Disease Control (CDC) and the Environ-mental Protection Agency, however, there isno link between mold and serious illnesses.“There are very few case reports that toxicmolds inside homes can cause unique or rarehealth conditions,” the CDC noted in a report.“The common health concerns from moldsinclude hay fever-like allergic symptoms.”

In addition, this “plague” is not blamedon a new strain of mold or sudden increase inreal mold damage. The only change precipi-tating this crisis is the evolution of a newformula by plaintiff attorneys, which trans-forms water-loss property claims into law-suits for bodily injury, huge attorney fees, andpunitive damages.

The mold litigation explosion has devas-tated the Texas insurance market and majorcarriers in Florida are reporting dramaticincreases in claims for mold, which rarelyoccurred in Florida two years ago. This fact,combined with Florida’s unique legal doc-trines and damp climate, make Florida aperfect environment for this litigation infesta-tion to thrive and to destroy the state‘s

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12 Employer Advocate • Winter 2004

The average cost

per policyholder

per year in Texas

due to mold

increased 1,805

percent between

the first quarter of

2000 and the third

quarter of 2001.

insurance market, unless immediate, appro-priate action is taken.

Mold litigation losses could become moresevere in Florida than in any other statebecause of our unique laws that producehuge attorney fees and “bad faith” damages,even if the court agrees that the insurer had acompletely reasonable basis for its actions.Florida also has an unusually large popula-tion of public adjusters, who aggressivelyrecruit policyholders to file claims. Andfinally, Florida faces the unique exposure ofhundreds of thousands of dollars of waterlosses at one time due to a hurricane.

Florida’s hot and humid climate provides aperfect home for mold to take hold andthrive. Mold losses have not historically beena major factor in insurance costs and premi-ums in Florida because legitimate moldclaims were not frequent or large. In fact, thevast majority of “mold” cases have neverbeen covered by insurance, but rather aremaintenance issues that are best dealt with byhomeowners, not insurers.

Rate increases necessary to cover thisunprecedented surge in mold claims havemade homeowners insurance premiums inTexas and California the highest in the coun-try and forced some insurers to suspendwriting new homeowners business in severalstates, including Florida. The average cost perpolicyholder per year in Texas due to moldincreased 1,805 percent between the firstquarter of calendar year 2000 ($23.32) and thethird quarter of 2001 ($444.35).

As with homeowners insurance, currentcommercial liability rates were developedusing claims data from a time when moldlawsuits were relatively rare. As such, currentliability insurance rates do not contemplatethis emerging issue. And, because the extentof the emerging mold litigation crisis incommercial insurance cannot be accuratelypredicted, it is almost impossible to accu-rately price for this exposure.

AIF will ask lawmakers to take action thisyear to shield insurance carriers and theirclients against a Texas-sized insurance crisisgrounded not by liability, negligence, or

science, but in the actions of rapacious per-sonal-injury lawyers, self-styled “expert”witnesses, and greedy plaintiffs.

Premises Liability ReformFlorida employers who own or manage

property face inequitable exposure to liabilityfor intentional criminal acts of third parties.Since Florida courts apply the doctrine ofjoint and several liability to premises liabilitycases, an employer can find himself paying allof the civil damages awarded to a plaintiffwho is the victim of a criminal attack on theemployer’s property, even though the em-ployer has done everything he can to protectthe safety of his customers.

AIF supports applying comparative fault,rather than joint and several liability, to allintentional torts so that property owners andmanagers would only be liable for damagesarising from their own negligence.

AIF also supports the creation of a statu-tory affirmative defense, similar to the ap-proach adopted for the convenience-storeindustry, which would allow a defendantemployer to demonstrate to the jury that hepracticed security conscious methods ofoperation. This rebuttable defense wouldrequire the defendant to show that it fulfilledat least six of eight requirements, such asinstalling security cameras, emergency callboxes, and lights of a certain brightness.

Workers’ Compensation Rate ReformAs part of the 2003 workers’ compensation

reforms, the Florida Senate and some mem-bers of the House of Representatives insistedon a study of Florida’s current system forsetting workers’ compensation rates. Thesereform skeptics wanted to investigate alterna-tive rate-making mechanisms, in the beliefthat a lack of competition was keepingworkers’ comp insurance costs high.

Currently, all workers’ compensationinsurance carriers in the state use rates thatare set by the Office of Insurance Regulationbased on data collected by NCCI, a privaterating organization. Florida uses a “full” ratefor workers’ comp, which means that the

B u s i n e s s R e p o r t

Employer Advocate • Winter 2004 13

For more

information

on the issues

covered in

Employer

Advocate, visit

AIF’s members

only Web site,

http://fbnnet.com

rates approved by state regulators are used byall carriers. Carriers then use such instru-ments as innovative premium plans andworkplace safety programs to make theirproducts more affordable in the marketplace.

Supporters of a popular alternative —called loss cost, or open rating — argue thatapplying the principles of competition to thepricing of workers’ comp insurance policieswould deliver a much-needed dose of marketdiscipline, which would accrue to the benefitof employers. A closer look at the records ofstates with the two opposing systems, how-ever, revealed that rating methodologiesalone do not correlate to lower premiums.

An abundance of data indicates that the highprice of Florida’s workers’ comp system is theresult of neither a lack of competition nor of thecurrent rating system. In fact, according to acouple of highly predictive measures, there existsa healthy level of competition in our workers’comp market. Among the factors that do demon-strably affect premium costs are actual benefitlevels, which in Florida rank among the highestin the nation, and expense levels, includinglitigation costs, taxes, and assessments, whereagain Florida earns a high ranking.

In a state such as Florida, where the cost ratiois 118 percent, there is no evidence that profitmargins are inflated and that a conversion toloss-cost would force carriers to wring outsavings on premiums charged to employers.

AIF believes that the current system will,in the long run, provide greater stability inthe marketplace. The dramatic reformsenacted in 2003 must be given time to realignthe system and bring it back to the kind ofstability that will result in lower premiums.

Furthermore, staying with the tried andtrue will protect Florida employers against areplay of the debacle in California, wherelarge carriers swept in after the conversion toopen rating, captured the market, drove outthe local insurers, then abandoned the statewhen costs started escalating.

The joint select committee created in the2003 reform legislation reached the sameconclusion and voted against recommendinga switch in Florida’s rate-setting methodolo-

gies. Clear and convincing evidence is notenough to sway the opinions of insurance-carrier skeptics so this issue may be rebornduring the upcoming session.

Alternative Rate MechanismsThe Office of Insurance Regulation sets all

rates for workers’ compensation policies issuedin the state and carriers are allowed minimaldiscretion to depart from those rates in thepremiums they charge to their policyholders.

Carriers currently are allowed to utilizeseveral voluntary rating options, includingdividends, deviations, large deductibles,consent-to-rate, retrospective-rating plans,increased employer-liability limits, waiver ofsubrogation rights, and schedule ratings.Many of these are frequently used success-fully, particularly dividends and largedeductibles. Deviations, however, are verydifficult to obtain in Florida, primarily be-cause the Office of Insurance Regulation hasto consider the overall market effect of eachdeviation before granting authority to thecarrier to use it, a subjective measure thateffectively repeals the ability to use devia-tions as a mechanism to lower rates.

Consent-to-rate plans are primarily used inother states as a mechanism to help an em-ployer avoid entering a joint underwritingassociation or residual market, which typi-cally charge rates well above market levels.This mechanism could be refined in Florida tobenefit employers and carriers as a means todepopulate the residual market.

To assist more employers in exiting theresidual market, AIF also supports the cre-ation of incentives for carriers that utilizeconsent-to-rate plans, or provisions containedin last year’s reform legislation, to depopulatethe JUA. These could come in the form ofabatements to the Workers’ CompensationAdministrative Trust Fund and SpecialDisability Trust Fund assessments, or aspremium tax credits. ■

Jacquelyn Horkan is a freelancewriter in Tallahassee, Florida(e-mail: jhorkan@aif.com).

OFFICERSJon L. ShebelPresident & CEO of Associated Industries ofFlorida and affiliated corporations ... morethan 35 years as a lobbyist for AIF ... directsAIF’s legislative efforts based on AIF Board ofDirectors’ positions ... graduated from TheCitadel and attended Stetson UniversityCollege of Law.

Barney T. Bishop IIIChief lobbyist & chief political officer ofAssociated Industries of Florida ... President &CEO, The Windsor Group … former aide tostate Treasurer Bill Gunter … former execu-tive director of the Florida Democratic Party… more than 25 years of experience inlegislative and political affairs … areas ofexpertise include appropriations, criminaljustice, and behavioral health care issues …B.S. in political & judicial communicationfrom Emerson College in Boston.

Mary Ann Stiles, Esq.General counsel of Associated Industries ofFlorida ... managing partner in the law firmof Stiles, Taylor, & Grace, P.A. ... more than31 years of legislative and lobbying expertisebefore the Legislature and other branches ofgovernment ... graduate of HillsboroughCommunity College, Florida State University,and Antioch Law School.

Chris VerlanderSenior vice president — corporate develop-ment of Associated Industries of Florida ...more than 24 years of expertise in insurancelobbying activities ... former president (1994-1997) and vice chairman (1997-1999) ofAmerican Heritage Life Insurance Company... B.S. from Georgia Tech and M.B.A. fromthe University of Florida.

AIF lobbyists, representing centuries of accumulated experience in politics and government, spent more

DEAR FLORIDA EMPLOYER:

By standing up for your right tosucceed, free from governmentintrusion and interference, AssociatedIndustries of Florida helps companieslike yours grow.

For most of this century, whereverand whenever governmental officialshave met, Associated Industries hasmade sure they listen to the voiceof the state’s employers.

We champion the value of hardwork and productive endeavor andthe incentive offered by the abilityto make a profit. We make suregovernment officials understand theconsequences of their actions onthe ability to succeed in Florida.

Like it or not, the decisions madein Tallahassee can make thedifference between success andfailure in commerce. When thosedecisions are made, AssociatedIndustries speaks out on the sideof success.

If your company does not belongto Associated Industries, pleaseconsider the benefits of joining.With your support, we can grow inour mission to promote a vigorouseconomy, filled with the promise ofabundance for every person whocalls Florida home.

Jon L. ShebelPRESIDENT & CEO

Associated Industries ofAssociated Industries of

“The AIF staff is extremely competent andhighly respected as one of the best lobbyinggroups in Tallahassee, and is, as a result,very effective in representing business.”Lance Ringhaver, President – RINGHAVER EQUIPMENT COMPANY

CONSULTANTSRobert P. AsztalosPartner with the lobbying firm of Buigas,Asztalos & Associates and director ofgovernmental affairs for Delta Health Group... more than 16 years of experience aslobbyist on the state and national level ...Former Director of Legislative Affairs for theFlorida Health Care Association and SeniorCongressional Affairs Representative for theAmerican Health Care Association in Wash-ington, D.C. ... Master’s degree in LegislativeAffairs and a Bachelor’s degree in PoliticalScience from George Washington University.

Doug BaileySenior political officer of Associated Indus-tries of Florida ... executive vice president &COO, The Windsor Group, a governmentalrelations consulting firm … areas of expertiseinclude appropriations, criminal justice, andbehavioral health care issues and campaignsand elections ... B.S. in political science fromWestern Carolina University, M.P.A. fromThe Askew School of Public Policy andAdministration at Florida State University.

Ronald L. Book, Esq.Principal shareholder of Ronald L. Book, P.A.… former special counsel in Cabinet andlegislative affairs for Gov. Bob Graham …and formerly worked for Florida House ofRepresentatives … 32 years of expierence ingovernment and legislative activities … areasof expertise include legislative andgovernmental affairs with an emphasis onsports, health care, appropriations,insurance, and taxation … graduate of theUniversity of Florida, Florida InternationalUniversity and Tulane Law School.

Keyna CoryPresident, Public Affairs Consultants, apublic affairs and governmental relationsconsulting firm ... more than 19 years ofexperience representing a variety of clients,from small entrepreneurs to Fortune 500companies, before the Florida Legislature ...majored in political science at theUniversity of Florida.

Tamela Ivey Perdue, Esq.Shareholder with the law firm of Stiles,Taylor & Grace, P.A. … more than threeyears experience representing insurers andthe business community on workers’compensation issues … established legalpractice specializing in workers’ compensationdefense … formerly worked in the FloridaSenate Majority Office, Rules Committeeand Committee on Ethics and Elections …B.S. from Lee University and J.D. fromStetson University.

Jim RathbunPresident of Rathbun & Associates ... morethan 15 years of experience representingindividuals and entities before the Legislature,state agencies, and the governor andCabinet ... formerly worked with the FloridaHouse of Representatives and served as staffdirector of the House Republican Office ...B.S. from Florida State University.

Guy Spearman, Esq.President, Spearman Management, Inc.,government relations consulting firm ...30 years of experience representing avariety of clients from small to large ...graduate of Auburn University andFlorida State University College of Law.

Gerald WesterManaging partner, Capital City Consulting,LLC ... former chief deputy over FloridaDepartment of Insurance’s regulatory staff ...more than 28 years of lobbying experience... expertise in insurance, banking, andhealth care issues ... Bachelor’s and master’sdegrees from Florida State University.

Mike ZagoracFormer senior vice president, public affairsfor Hill & Knowlton, Inc. ... former vicepresident of public affairs for the Jack EckerdCorporation and vice president of theNational Association of Chain Drug Stores ...more than 35 years of experience in mediaand public relations, community affairs, andenvironmental issues ... Bachelor’s degreefrom Purdue University and M.B.A. degreefrom American University.

than 10,000 hours in the Capitol during the 2003 Legislative Session advocating for your business interests.

of Florida 2004 Lobbying Teamof Florida 2004 Lobbying Team

P o l i t i c sPRESORTEDSTANDARD

US POSTAGE PAIDTALLAHASSEE FLPERMIT NO 904

ssociated Industries of Florida Service Corporation516 NORTH ADAMS STREETP.O. BOX 784 TALLAHASSEE, FL 32302-0784

For more

information on

the benefits of

membership

in AIF, visit

http://aif.com

(Continued from page 3)

members’ personal agendas, combined withthe politics of a presidential election yearcould end up discounting whatever mean-ingful reform will be proposed. Let’s hopenot.

As it stands now, however, there is littleindication that Floridians are open to limita-tions on their right to pursue ballot initia-tives, no matter how irresponsible thecurrent process might be. Recent publicopinion research indicates that 70 percent ofFloridians approve of the citizen initiativeconstitutional amendment process. Votersindicate an appreciation for the sanctity ofthe constitution (53 percent), and nearly half(46 percent) believe that too many ballotquestions appear from year to year. Whenvoters are faced with the prospect ofrestrictions on their access to direct democ-

racy, however, their support wanes; 50percent favor leaving the process the way itis. Only 42 percent favor making the pro-cess more difficult and the remaining 8percent are undecided.

That 8 percent may hold the key to what,if any, reform is ratified this year. TheLegislature should consider proposingreforms aimed at creating a more respon-sible citizen initiative process, while main-taining citizen access to the document. Thearguments should be about making theprocess more reflective of the lasting publicinterest and less reactive to transitory publicopinion. ■

Doug S. Bailey is the senior politicalofficer for Associated Industriesof Florida (e-mail: doug@thewindsorgroup.net).