The Dormitory Authority of the State of New York received nine responses last week to a request for information about using taxable and tax-exempt bond financing for settlements with the state's special disability fund, also known as the Second Injury Fund.
The fund was closed to new claims on July 1, 2007, as part of an overhaul of the state's workers compensation system signed into law last year by former Gov. Eliot Spitzer. The law authorized DASNY to sell debt to finance settlements with injured workers that would be backed by assessments on insurance companies and self-insured employers.
DASNY encouraged firms to partner with minority and women-owned underwriting firms in their responses. DEPFA First Albany Securities LLC partnered with Samuel A. Ramirez & Co. JPMorgan partnered with Jackson Securities, LLC. Merrill Lynch & Co. partnered with Loop Capital Markets, LLC. Goldman, Sachs & Co. partnered with Siebert Brandford Shank & Co. LLC. Citi partnered with M.R. Beal & Co. Roosevelt & Cross, Inc. partnered with Lebenthal & Co. LLC. Banc of America Securities LLC, Morgan Stanley and Wachovia Bank N.A. each submitted responses without partnering with another bank. DASNY invited responses from all firms that are currently serving as senior managers and co-senior managers.
DASNY could choose an underwriter within a few weeks, spokesman Marc Violette said in an e-mail. Violette said that the authority did not know how large the deal or deals for the settlements would ultimately be. Brian Keegan, a spokesman for the New York State workers' compensation board, said that last year the fund paid out $487.7 million in claims. It's not clear when the bonds would sell, but a worker's compensation board staff member said they expect to begin making settlements with the bond proceeds early next year.
Connecticut took a similar action in 1996 when it authorized the sale of up to $750 million of bonds to settle claims on its second injury fund though it only sold $225 million. A market source said DASNY could end up selling billions of bonds for the settlements.
DASNY expects the financing to cover several approaches to settle the liabilities, including paying settlements on the claim to the insurers or self-insured employers and reinsuring claims and providing a payment to the insurers or self-insured employers for assuming the long-term liability.
The state also plans to develop arrangements with firms to settle claims that are not yet known. The state division of budget and the Insurance Department are also involved in putting together the approach.
Many states created second injury funds after the Second World War as an incentive for employers to hire veterans. The concern at that time was that if a previously injured employee were injured on the job, the combination of the two injuries might leave the worker fully and permanently disabled and the employer would be liable to pay higher worker compensation costs.
A second injury fund would step in and reimburse either the employer, if it were self-insured, or an insurance company providing workers compensation insurance to the employer after several years for their additional costs, which put a cap on an employer's liability. Employers pay into the fund, which covered all workers with prior permanent injuries, not just veterans.