State law says premiums and other money paid into the fund must be used only for operations and obligations of the fund. Money may not be transferred by the Legislature to other funds.

"That gives me the legal concern with the apparent management fee," Hubbard said. "It's got some very serious legal infirmities and I think that causes me the most concern."

About 25,000 businesses around the state pay into the State Fund to provide workers' compensation insurance to their employees. Hubbard said the 3 percent management fee would equate to a tax on those businesses. State Fund assets by law are managed by the Board of Investments.

"The policy holders that pay the premium are the ultimate owners of the assets of the company," he said.

Hubbard said the governor's office had not discussed the proposal with him before Monday's announcement. The State Fund has been tapped by the Legislature, creating issues with liabilities for claims from before 1990, something many have been critical of. In 2003, a law was passed restricting the fund's use, which Hubbard said some may not remember.

"That was a long time ago. We've had a lot of turnover. Memories can be short."