FISCAL YEAR 2019-2020 ANALYSIS OF THE NEW JERSEY BUDGET DEPARTMENT OF BANKING AND INSURANCE Prepared by the New Jersey Legislature Office of LEGISLATIVE SERVICES April 2019 NEW JERSEY STATE LEGISLATURE SENATE BUDGET AND APPROPRIATIONS COMMITTEE Paul A. Sarlo (D), 36th District (Parts of Bergen and Passaic), Chair Sandra B. Cunningham (D), 31st District (Part of Hudson), Vice-Chair Dawn Marie Addiego (D), 8th District (Parts of Atlantic, Burlington and Camden) Bob Andrzejczak (D), 1st District (All of Cape May, Parts of Atlantic and Cumberland) Nilsa Cruz-Perez (D), 5th District (Parts of Camden and Gloucester) Patrick J. Diegnan Jr. (D), 18th District (Part of Middlesex) Linda R. Greenstein (D), 14th District (Parts of Mercer and Middlesex) Declan J. O’Scanlon, Jr. (R), 13th District (Part of Monmouth) Steven V. Oroho (R), 24th District (All of Sussex, and parts of Morris and Warren) M. Teresa Ruiz (D), 29th District (Part of Essex) Troy Singleton (D), 7th District (Part of Burlington) Samuel D. Thompson (R), 12th District (Parts of Burlington, Middlesex, Monmouth and Ocean) GENERAL ASSEMBLY BUDGET COMMITTEE Eliana Pintor Marin (D), 29th District (Part of Essex), Chair John J. Burzichelli (D), 3rd District (All of Salem, parts of Cumberland and Gloucester), Vice-Chair Daniel R. Benson (D), 14th District (Parts of Mercer and Middlesex) Robert D. Clifton (R), 12th District (Parts of Burlington, Middlesex, Monmouth and Ocean) John DiMaio (R), 23rd District (Parts of Hunterdon, Somerset and Warren) Gordon M. Johnson (D), 37th District (Part of Bergen) Patricia Egan Jones (D), 5th District (Parts of Camden and Gloucester) John F. McKeon (D), 27th District (Parts of Essex and Morris) Raj Mukherji (D), 33rd District (Part of Hudson) Nancy F. Munoz (R), 21st District (Parts of Morris, Somerset and Union) Carol A. Murphy (D), 7th District (Part of Burlington) Edward H. Thomson (R), 30th District (Parts of Monmouth and Ocean) Benjie E. Wimberly (D), 35th District (Parts of Bergen and Passaic) OFFICE OF LEGISLATIVE SERVICES Frank W. Haines III, Legislative Budget and Finance Officer Thomas Koenig, Assistant Legislative Budget and Finance Officer Marvin W. Jiggetts, Director, Central Staff Thomas K. Musick, Section Chief, Commerce, Labor and Industry Section This report was prepared by the Commerce, Labor and Industry Section of the Office of Legislative Services under the direction of the Legislative Budget and Finance Officer. The primary author was Juan C. Rodriguez. Questions or comments may be directed to the OLS Commerce, Labor and Industry Section (Tel: 609-847-3845) or the Legislative Budget and Finance Office (Tel: 609-847-3105). DEPARTMENT OF BANKING AND INSURANCE Budget Pages ....... C-3, C-9, C-16, D-23 to D-29 Fiscal Summary ($000) Adjusted Percent Expended Appropriation Recommended Change FY 2018 FY 2019 FY 2020 2019-20 State Budgeted $56,938 $64,013 $64,013 0.0% Federal Funds 230 0 0 ---- Other 1,447 454 454 0.0% Grand Total $58,615 $64,467 $64,467 0.0% Personnel Summary - Positions By Funding Source Percent Actual Revised Funded Change FY 2018 FY 2019 FY 2020 2019-20 State 0 0 0 ---- Federal 2 0 0 ---- Other 450 426 515 20.9% Total Positions 452 426 515 20.9% FY 2018 (as of December) and revised FY 2019 (as of January) personnel data reflect actual payroll counts. FY 2020 data reflect the number of positions funded. Link to Website: http://www.njleg.state.nj.us/legislativepub/finance.asp Department of Banking and Insurance FY 2019-2020 Highlights • The Department of Banking and Insurance’s activities are entirely funded through revenue collected from fees and assessments imposed on the industries it regulates, and in certain years, federal funding. • The Governor’s FY 2020 Budget recommends $64.5 million in State and dedicated funds be appropriated for the department in FY 2020, which is the same as the current year’s adjusted appropriations. • The Governor’s FY 2020 Budget funds 515 positions in the department in FY 2020, which is unchanged from the count of funded positions in FY 2019. Of the 515 funded FY 2019 positions, 426 were filled in January 2019. Of the 89-count difference between FY 2019 filled and funded positions, 69 unfilled but funded positions were located in the Consumer Protection Services and Solvency Regulation and the Bureau of Fraud Deterrence program classes. • P.L.2018, c.24 directs the department to establish a health insurance reinsurance plan. The Health Insurance Premium Security Plan allows health insurance carriers that experience a sudden increase of high-cost claimants and claims to be reimbursed from the reinsurance fund. The department received federal approval and a commitment of financial support for the reinsurance plan for the period from January 1, 2019 through December 31, 2023. The Governor’s FY 2020 Budget does not include financial information regarding the implementation and operation of the reinsurance plan. • On March 22, 2019, the Governor announced that the State would move to a State- Based Health Exchange for calendar year 2021, assuming the enactment of legislation implementing the funding plan for the initiative. The State currently uses the federally- facilitated exchange. According to the press release, the Administration proposes using the annual amount the State pays as a federal exchange user fee - currently over $50 million - to fund the State-Based Health Exchange and Affordable Care Act-related health insurance outreach and enrollment efforts. The Governor’s FY 2020 Budget includes neither a readily identifiable appropriation nor a projection of dedicated revenue for these purposes. • Out-of-State insurance companies pay two percent tax on premiums for fire insurance policies written on New Jersey properties. The New Jersey State Firemen’s Association (NJSFA) receives collections from the tax and distributes about half of this money to the 538 local relief associations. The Governor proposes newly transferring $33 million of the amounts otherwise deposited with the NJSFA to the General Fund as State revenue. The amount is included in estimated FY 2020 Insurance Premiums Tax collections of $513.9 million. 2 Department of Banking and Insurance FY 2019-2020 Fiscal and Personnel Summary AGENCY FUNDING BY SOURCE OF FUNDS ($000) Adj. Expended Approp. Recom. Percentage Change FY 2018 FY 2019 FY 2020 2018-20 2019-20 General Fund Direct State Services $56,938 $64,013 $64,013 12.4% 0.0% Grants-In-Aid 0 0 0 ---- ---- State Aid 0 0 0 ---- ---- Capital Construction 0 0 0 ---- ---- Debt Service 0 0 0 ---- ---- Sub-Total $56,938 $64,013 $64,013 12.4% 0.0% Property Tax Relief Fund Direct State Services $0 $0 $0 ---- ---- Grants-In-Aid 0 0 0 ---- ---- State Aid 0 0 0 ---- ---- Sub-Total $0 $0 $0 ---- ---- Casino Revenue Fund $0 $0 $0 ---- ---- Casino Control Fund $0 $0 $0 ---- ---- State Total $56,938 $64,013 $64,013 12.4% 0.0% Federal Funds $230 $0 $0 (100.0%) ---- Other Funds $1,447 $454 $454 (68.6%) 0.0% Grand Total $58,615 $64,467 $64,467 10.0% 0.0% PERSONNEL SUMMARY - POSITIONS BY FUNDING SOURCE Actual Revised Funded Percentage Change FY 2018 FY 2019 FY 2020 2018-20 2019-20 State 0 0 0 ---- ---- Federal 2 0 0 (100.0%) ---- All Other 450 426 515 14.4% 20.9% Total Positions 452 426 515 13.9% 20.9% FY 2018 (as of December) and revised FY 2019 (as of January) personnel data reflect actual payroll counts. FY 2020 data reflect the number of positions funded. AFFIRMATIVE ACTION DATA Total Minority Percentage 34.3% 36.2% N/A ---- ---- 3 Department of Banking and Insurance FY 2019-2020 Significant Changes/New Programs ($000) The Governor’s FY 2020 Budget recommendation for the Department of Banking and Insurance does not change any appropriation amount or contain any new program when compared to the FY 2019 Appropriations Act. 4 Department of Banking and Insurance FY 2019-2020 Significant Language Changes Diversion of Tax Revenue Dedicated to New Jersey State Firemen’s Association Addition 2019 Handbook: N/A 2020 Budget: p. F-12 101. Notwithstanding the provisions of R.S.54:18-1, or any law or regulation to the contrary, $33,000,000 of the amount deposited with the New Jersey State Firemen's Association shall be transferred to the General Fund as State revenue. Explanation The Governor recommends including new language in the FY 2020 Appropriations Act that would transfer $33.0 million of the amounts deposited with the New Jersey State Firemen’s Association (NJSFA) to the General Fund as State revenue. The amount is included in estimated FY 2020 Insurance Premiums Tax collections of $513.9 million. Out-of-State insurance companies pay two percent tax on premiums for fire insurance policies written on New Jersey properties. The NJSFA receives annual collections from the tax and retains 52 percent thereof for burial benefits, the special relief fund, administrative costs, and other expenses. The NJSFA distributes the other 48 percent of annual tax collections to 538 local relief associations (LRAs). The LRAs may use the funds to pay relief benefits, convention expenses, and administrative expenses, such as salaries of the LRA officers and trustees. In 2016, the NJSFA received approximately $32.0 million in tax revenue and distributed about $16.0 million of those funds to the LRAs. On December 19, 2018, the New Jersey Office of the State Comptroller (OSC) released an investigative report entitled, “Administration of Benefit Funds by the New Jersey State Firemen’s Association.” The OSC’s investigation revealed an accumulation of about $245.0 million in combined total assets by the NJSFA and LRAs. The report attributed this buildup of assets to statutes that date back to the 1880s, which have limited the use of funds to burial benefits and financial assistance for “needy” firefighters and their families.