State: California DIR Raises Overall Assessments More Than $115 Million: Top [11/25/09]

By Greg Griggs, Editor
greg@workcompcental.com

The annual assessments to California employers to cover the cost of workers' compensation, labor law and occupational safety regulation are going up by nearly 37% in 2010 and those set to receive a bill beginning this week are none too happy about it.

The state assessments to the Department of Industrial Relations (DIR) are expected to raise a total of $426.8 million from all California employers in 2010, up more than $115 million from the $311.7 million assessed this year.

The Division of Workers' Compensation increased user assessment by nearly 20%, and on top of that the state is collecting funding for the California Division of Occupational Safety and Health and the California Department of Insurance’s Fraud Assessment Commission.

And for the first time, the annual assessments will include money to pay for operations of the Division of Labor Standards Enforcement.

Because of the ongoing budget crisis — California expects to face a nearly $21 billion budget shortfall through 2011 — more of the cost of regulation in workers' compensation and labor laws has been shifted from the state's General Fund to the employer community.

"Financing more government services on the backs of employers comes at a terrible time given the state of the economy. With everything that employers are trying to do to protect jobs and keep their doors open, this is just one more increased cost," said Jerry Azevedo spokesman for the Workers' Compensation Action Network. "And this is coming at the same time that workers' compensation insurance premiums are going up, so it's a bit of a double whammy hitting employers at the same time."

More than half the total cost increase comes from deals worked out earlier this year to produce a balanced budget in Sacramento.

Now, employers will have to pick up the state's share of the Occupational Safety and Health Division, where before some of Cal-OSHA's operating costs had been covered by general fund dollars. The funding shift will take employer assessments for the Cal-OSHA fund from $18.9 million this year to nearly $56.5 million in 2010. Through the assessment, employers will pay 41% of Cal-OSHA's operating costs. The federal government provides about 27% and the balance is covered by other fees.

On top of Cal-OSHA, employers will pay $32.4 million through a new assessment for the Labor Enforcement and Compliance Fund, which pays for Division of Labor Standards Enforcement inspections. Employers will now pay 73% of the division's costs.

State officials say it's an investment in stability.

"Over the years we've dealt with fluctuations in the general fund. This funding shift will give us more stability in our programs in Cal-OSHA and Labor Enforcement, so we can provide better services to legitimate employers," said DIR spokesman Dean Fryer. "We're looking at creating more even competition for employers by addressing the underground economy that's undercutting their overhead. We're improving workplace safety. Our workplace fatalities and injuries are down again. With stability in funding, we will be able to continue on that path."

Scott Hauge, president of Small Business California, said uninsured employers are a major drain on the state's economy and make it difficult to compete for employers who play by the rules and provide workers' compensation coverage for their employees.

"I'd love to see the state go after the scofflaws," said Hague.

But he added that times are tough for all California business and a 36.9% increase in workers' comp costs is never welcome.

"Obviously we don't like more fees. That goes without saying," Hague said. "All the fees just keep going up, including things we think should be paid by government, but it's being transferred to us. I understand the state's economic problems, but this is frustrating. We don't like it."

Bob Adams, chief financial officer for California State Association of Counties Excess Insurance Authority, which coordinates workers' comp coverage for 11 counties in the state and cities including Carmel, Hemet and Lancaster, said the state system of waiting until November to request assessments due by Dec. 31 makes it nearly impossible to plan ahead.

"Historically this has been a budget-buster for us," he said.

In the case of CSAC, Adams said the joint powers of authority had an assessment last year of $525,000 and budgeted a 15% increase for next year, or $605,000. But based on the DIR's rates officially released Monday afternoon, he said his agency's 2010 assessment will be closer to $900,000.

Along with the higher rate, Adams said it's senseless to make local and regional governments pay into the Uninsured Employers Benefits Trust Fund Assessment, when governments always carry workers' comp coverage or are self-insured. The problem of uninsured employers is unique to the private sector, he said.

"I've been doing this for 30 years and I don't know any public entities that are uninsured, so this is an outright gift of public funds," Adams said. "This is an outrage and we have no say in it. It's all done at the state level and our voices are not heard."

The DWC, which coordinates the collections, bills companies through their insurance companies and those that are self-insured are billed directly. Insurance companies are required to advance the money to the state and recover it through assessments or other fees to policyholders.

Those businesses that buy insurance from private insurers or the State Compensation Insurance Fund are assessed based on the total premiums they pay, while self-insured employers pay their assessments based on their "indemnity amount," or the amount of workers' comp benefits they paid out in the previous year.

Here's a look at the assessments for insured companies this year and next:

DWC's 2009 assessment for its Worker's Compensation Administration Revolving Fund was 0.013583 which generated $195,056,3363 from both insured companies and self-insured employers. For 2010, the assessment rate increased to 0.015166, which is expected to generate $233,309,000.
The 2009 assessment rate for the Uninsured Employers Benefit Trust Fund was 0.002241, which generated $33,175,000. For 2010, the rate is 0.001849, which is expected to generate $36,805,000.
The 2009 assessment rate for the Subsequent Injuries Benefits Trust Fund was 0.000827, which generated $15 million. For 2010, the rate is 0.001050, which is expected to generate $16,250,000.
The 2009 assessment rate for the Occupational Safety and Health Fund was 0.001185, which generated $18,960,000. For 2010, the rate is 0.003064, which is expected to generate $56,496,000.
The 2009 assessment rate for the Workers' Compensation Fraud Account was 0.003956, which generated $49,559,268. For 2010,the rate is 0.003986, which is expected to generate $51,525,700.

To review the DWC letters explaining the rates, go here:
http://www.workcompcentral.com/pdf/2009/misc//DWCNov232009.pdf