Workers Comp Zone


With big budget shortfalls, there’s a trend toward targeted funding for state programs.

California employers pay for the system via “user funding” assessments.
User funding in the comp system came under consideration during Jerry Brown’s governorship in the early 1980s. Partial user funding was enacted in the late 1980’s. Total user funding was passed in 2004.

Employers and self-insureds are not just assessed to pay for the operations of the WCAB and the California Division of Workers’ Compensation, however. Assessments also fund the Uninsured Employers Benefits Trust Fund, the Subsequent Injuries Benefits Trust Fund, Cal OSHA, the Division of Labor Standards Enforcement (DLSE), and the Workers’ Compensation Fraud Assessment Commission.

Overall, this is a good thing. With current budget problems, it’s unlikely these various agencies could be properly funded given the massive state revenue shortfall. Many observers predict a very nasty 2010 budget negotiation which may see teachers pitted against park advocates against law enforcement and prison guards against Cal State and UC……well, you get the idea.

Everyone is desperate to preserve their own funding.

In Cal OSHA’s case, the user funding provided in 2009 about 38% of Cal-OSHA’s money, with federal support contributing about slightly less than 30%

In 09 most employer groups opposed an increase in assessments on employers. Focusing on saving monies in California’s general fund, Governor Schwarzenegger and the legislature approved an increase in employer assessments. The result is significant for those programs. No way would they be funded properly through a yearly combative, politicized budget process.

It’s worth remembering that Cal OSHA has a critical role in promoting worker safety. And the Division of Labor Standards Enforcement has a critical role in finding and citing employers who cut corners with labor standards laws.

Every month we hear of employer busts. Often the employers have no workers comp coverage. Many of these same employers fail to observe
overtime and meal break rules.

So this all goes hand in hand with workers’ compensation. Studies over the last few years by UC Berkeley researchers have shown that California has a massive problem with employers who either lack coverage or misreport employee information on which premiums are based.

Cal OSHA and DLSE undoubtedly help reduce workers’ comp costs by
preventing employer practices which result in injuries.

The Department of Industrial Relations has now released information on 2010 assessments. Here’s data from the California Workers Compensation Institute:

But the tab bothers some.

The total assessments were $311.7 million in 2009. For 2010 they rise to around $426 million.

Some are troubled that these responsibilities are being transferred out of the General Fund. Others are just worried about increasing costs on employers in a steep recession. This hits cities and counties and public districts very hard.

Here’s a piece on the topic by David DePaulo, publisher of the excellent
website (DePaulo’s piece, which equates the assessments to taxation without representation, follows, in quotes):

“By David DePaolo

“I made a stink in May when Gov. Schwarzenegger ordered work furloughs for all of state government, including those agencies, such as the Division of Workers’ Compensation, that do not take any money from the General Fund because they are self funded through “user assessment” fees the hidden tax. “

“Last year this hidden tax was increased by 22%. There was no outcry, no objection, no tea party. No one even noticed. “

“Except Department of Industrial Relations administrators they noticed the apathy.”

“Hey John,” I could sense a DIR deputy telling top dog Duncan, “no one even blinked last year when we raised fees, so let’s really make it worthwhile let’s go for 37%! We can justify it. We’ve spent $60 million on a new computer system that still needs more money because it doesn’t work. The Legislature handed us full fiscal responsibility for Cal-OSHA. And the state faces a $21 billion deficit still. This is an easy pay raise!”

“How does this happen? How is it that there are no checks and balances when it comes to administrative spending?”

“Here’s how: SB 228 (Alarcon) was signed in to law on Sept. 28, 2003 by Gov. Gray Davis and became effective Jan. 1, 2004. The key statute is Labor Code section 62.5, which is the section that established the Workers’ Compensation Administration Revolving Fund. It is a “special account” in the state Treasury and the method for assessing this tax is set forth in paragraph (e) of that section. “

“Paragraph (e) provides no system for restricting or monitoring the assessment process other than stating that, “In no event shall the total amount of the surcharges paid by insured and self-insured employers exceed the amounts reasonably necessary to carry out the purposes of this section.”

“While the director “shall adopt reasonable regulations governing the manner of collection of the surcharges,” the “regulations adopted shall be exempt from the rulemaking provisions of the Administrative Procedure Act.”

“In other words, the administration was given a license to steal, and they are abusing the privilege. They adopt their own standards for “reasonable” and there is no public vetting.”

“We had a war about this issue a couple hundred years ago I believe the outcry was something about taxation without representation.”

“Now, I may not be so upset if I felt the public was getting something for their money but we are not. “

“I pointed out in May (see article link in the sidebar) that when assessments increased 22% last year, the public actually was receiving 10% less service due to mandated work furloughs.”

“Now we have a 37% insult to injury imposed by the latest budgetary hocus-pocus. “

“According to the assessment memo released by DIR yesterday, nearly three cents of every policy dollar is now going to fund $426.8 million of various agency activity. This is an increase of $115 million from last year. Out of this the administration is going to spend $233 million on workers’ compensation a nearly 17% increase from last year. This part of the fund provides us with adjudication and administration services. “

“So, please folks, keep me in check here because I need to be sure I understand everything. The funding for DWC activity is increased by 17%, but with unemployment hovering near 12%, claims frequency for the first quarter of 2009 was 14.8% less than the first quarter of 2008 and 30% less than its all-time high in 1991 (stats by the Workers’ Compensation Insurance Rating Bureau). “

“Oh, I get it! This is the old grocery trick! Give the consumer less for more! Since claim frequency is down 15% from last year that means DWC needs $115 million more to ensure that state offices remain closed every other Friday.”

“Anyone up for a tea party? “

(David DePaolo is founder and chief executive officer of Inc.)

In this instance, I’ll have to disagree with David. Yes, there needs to be better accounting for DWC spending, particularly on the EAMS project.
Perhaps legislative hearings could be held on this, as on many other state-of-comp issues.

But it’s good to see that the workers’ comp community , with user funding, is somewhat immune to the vagaries and whims of the political process. Without these assessments, one can imagine a return to the days of the early 1980s, when chronic funding problems led to major backlogs and morale problems at the WCAB.

I’d like to hear from readers what they think.

Stay tuned.

Julius Young

Category: Political developments