Article by Erik Smith. Published on Friday, September 24, 2010 EST.

Department Doesn’t Want to ‘Confuse’ Businesses – Big Deficit Revealed, Time Loss Figures Getting Worse


L&I officials on the hot seat before a joint meeting of the House and Senate commerce and labor committees.  From left, Vicki Kennedy, Director Judy Schurke, Bob Malooly.

By Erik Smith

Staff writer/ Washington State Wire

OLYMPIA, Sept. 24.—The state Department of Labor and Industries is trying to keep bad news under wraps by delaying an announcement of next year’s worker’s compensation premiums until after the November election, lawmakers charged Thursday.

            At a meeting of the House and Senate committees that oversee the department, agency officials said they don’t want to “confuse” businesses by announcing next year’s rate in September, as they usually do. Critics say that explanation is awfully convenient. By keeping silent until after the election, they provide no fuel for an initiative on this year’s ballot that takes dead aim at their program.

            State Sen. Janea Holmquist, R-Moses Lake, didn’t mince words. As L&I director Judy Schurke was on the hot seat, she said:

            “I’m having a real hard time understanding why. I think you probably have the numbers in front of you right now.”

            All signs are that a whopping rate increase is in store for business next year. New figures presented at the meeting indicated that the state’s biggest insurance fund is eating into its reserves. And for more than a year, actuaries and auditors have been warning the state worker’s compensation funds are at risk of going insolvent unless a big rate increase is enacted.

Backers of Initiative 1082 were counting on this year’s rate announcement to make the case for the measure, which would allow private insurance companies to compete for the worker’s compensation business for the first time. Last week the announcement was postponed.

            Schurke said the delay isn’t intended to keep critical information from voters. She said the department decided this year to launch an extensive effort to develop better computer modeling – and that takes time. At the same time, she said the delay is really the initiative’s fault. The measure would change the way rates are calculated. Announcing next year’s rate – and then possibly having to change it – would only confuse businesses, Schurke said.

            “We thought it would be clear to businesses to be able to come out with one rate they could rely on,” she said.

            Republicans Aren’t Buying It

            State Rep. Cary Condotta, R-Wenatchee, said he doesn’t buy the explanation. Rumor has it that the department had calculated the number and had its rate proposal at the state code reviser’s office when department officials yanked it back, he said. “I was all set to ask her whether this was her decision, or whether the governor decided it,” he said. “But I think I would have been gaveled down.”

            What Condotta did say during the meeting was this:

            “There are two scenarios – with or without the initiative passing. You’ve done your homework. You must know what would happen if it doesn’t pass. I would like those numbers. I don’t care if you make them public, but I think we should have those numbers. You’ve done your work. You always provide those numbers. It could change, but I would like those numbers.”

            Schurke said, “We don’t have those numbers.”

            Condotta said, “You didn’t do your work?”

            Schurke said, “We will get them to you as soon as we have them, Rep. Condotta.”

            A $360 Million Deficit

            New figures presented at the meeting added to the speculation that a big rate increase is coming. Last year the Department of Labor and Industries adopted a 7.6 percent increase in worker compensation premiums – a move that brought big protests from business. Coupled with rate increases in unemployment insurance, business owners complained that the tax hikes would make it more difficult to rehire workers they had laid off due to recession.

            The problem was that the rate hike didn’t even come close to the amount that the department’s actuaries said was required in order to keep the insurance funds solvent. The workers’ comp insurance funds lost $1 billion between July 2008 and June 2009, because of the Wall Street meltdown and skyrocketing claims costs.

            The department’s actuaries said a 23 percent rate increase was required. The state auditor’s office said the figure was closer to 30 percent.

            At Thursday’s meeting, the effect of the department’s decision became clear. Because L&I didn’t raise rates all the way, the state accident fund is running in the red, eating into its reserves.

            The department announced that as of June 30, the accident fund reserve, the most important of the three benefit funds, was operating at a $360 million deficit.

            No Cause for Alarm, Schurke Says

            Schurke said the deficit is no surprise.

            “This is what we expected as a result of absorbing a large share of the rate increase last year. In trying to shield employers and use this to absorb some of the shock of the recession, we are $360 million in the negative, and I want to make it very clear this does not mean that we are unable to pay benefits… Although this is a worrisome picture to everybody, this was in part anticipated when we took the 7.6 percent. We did not expect that we would be trudging through this recession and the recovery the way we are, but at the same time we are still in good shape.”

            Time Loss Figures Are Up

            Meanwhile, another figure that the business community watches closely provides another sign of trouble. Under questioning, department officials admitted that time loss figures have increased significantly over the last year. The average time loss per claim is now 280 days, up from 266 days last year.

            Department officials acknowledge the figure is about twice the national average. But they also say the figure should not be compared directly to other states.

            That is because Washington is one of only a handful of states that does not allow lump-sum settlements to injured workers. The department has traditionally opposed cash-outs of claims.

            Even if national comparisons are off the table, Patrick Connor of the National Federation of Independent Business said the year-to-year comparison is bad enough. NFIB is one of the backers of I-1082. “Two more weeks in one year’s time – that’s astounding,” he said.

            The figures revealed at Thursday’s meeting, coupled with the department’s decision to withhold rates, paint a picture of an inefficient insurance program whose performance is getting worse, he said.

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