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House approves 2 percent IWIF premium tax

ANNAPOLIS — The Injured Workers’ Insurance Fund would bolster the state’s bottom line in the spending plan under consideration by the General Assembly, a budget-balancing move that would ultimately be passed along to the company’s ratepayers.

The proposal, part of a wide range of statutory tweaks and state account transfers submitted by the governor and approved by the House of Delegates, would subject IWIF’s premiums to the 2 percent tax paid by other workers’ compensation firms in the state.

That change would bring in about $2 million to the state’s general fund, and an additional accounting shift would send $4 million from IWIF to Maryland’s coffers in the coming fiscal year. The Maryland Automobile Insurance Fund — IWIF’s counterpart in the car insurance market — would also transfer $4 million to the general fund.

Representatives of the businesses that ultimately pay the premiums that fund IWIF had mixed reactions to proposal.

“It’s never a good time to impose a premium tax on small business owners, particularly on their workers’ compensation premiums,” said Ellen Valentino, Maryland director of the National Federation of Independent Business. She said that if IWIF has surplus cash, it should be used to reduce the premiums for the businesses that pay them.

But the Maryland Chamber of Commerce supports levying the premium tax on IWIF “to make sure they’re competing fairly.”

“Businesses never welcome a tax increase, but this is one that would make it more fair for IWIF and the other 150 or so insurance companies that offer workers’ compensation insurance in Maryland and pay the premium tax,” chamber lobbyist Ron Wineholt said.

The insurer had $1.7 billion in assets in 2010, an increase of $12 million for the second year in a row, according to a legislative budget analysis.

Gov. Martin O’Malley sought a larger infusion from IWIF last year — a one-time, $20 million boost to the general fund. That plan was scuttled by the General Assembly. Legislation was introduced in the Senate to move IWIF, which is overseen by a board of gubernatorial appointees — further from the state control and change its name to showcase its independence, but the measure stalled in the House of Delegates.

The fund transfers for IWIF and MAIF this year were made contingent on legislation removing their workers from the state employment system, a change the insurers requested. Del. Dereck E. Davis, chairman of the House Economic Matters Committee, said there is “not at this time” an effort to grant IWIF its independence, which would protect it from future transfers.

IWIF President and CEO Thomas J. Phelan did not respond to repeated requests for comment Thursday.

Valentino said she worries about the precedent the fund transfer will set.

“What we don’t want to happen is for the state to view IWIF and their coffers as a source of revenue,” she said. “They’re an important stabilizer to workers’ compensation premiums in the state.”

IWIF has been exempted from the tax as the state’s quasi-public insurer of last resort. But, the company’s business extends well beyond that role. It has 21 percent of the state’s workers’ compensation insurance market and is the largest such insurer in the state, according to legislative analysts.

The 2 percent premium tax, which would be applied to little more than half of fiscal 2012, would bring in $1.9 million. In the years following, that tax is expected to bring in between $3.5 million and $4 million. IWIF has forecasted about $160 million in taxable premiums in calendar 2011.