Legal Snafu Imperils Workers’ Comp Effort

A legal glitch threatens funding for the agency in charge of running the state’s troubled workers’ compensation insurance program, jeopardizing the handling of appeals for job-injury benefits and work on reforms to cut employers’ premiums.

The snafu arose after legislation passed in September that required employers, as of Jan. 1, to pay the entire cost of running the Division of Workers’ Compensation. Previously, businesses covered only 20% of overhead, with the remainder coming out of the state’s general fund. The division expects to run out of money by late February unless proposed remedies are enacted, Rick Rice, spokesman for the division’s parent agency, said Wednesday.

The problem surfaced late last week when state attorneys discovered that a bill signed by former Gov. Gray Davis mistakenly reestablished the old 80%-20% formula, effectively blocking the division and its 855 employees from receiving most of its funding.

The shortfall could affect efforts by the administration of Gov. Arnold Schwarzenegger to reform the state’s $29-billion-a-year workers’ compensation system. A law passed in September aims to cut as much as $5 billion in annual workers’ compensation costs.

“We need a strong, efficiently functioning agency to make the system work, let alone to achieve last year’s reforms,” said Samuel Sorich, president of the Assn. of California Insurance Companies.

Sorich noted that a Bureau of State Audits report released Tuesday confirmed that just two of last year’s changes could create major savings.

Business groups and Republican lawmakers agree that the division must be funded, but remain unenthusiastic about putting the burden completely on employers. Employers opposed last year’s fee hikes and insist that any tweaking this year be tied to the passage of a comprehensive workers’ compensation reform that the governor said he wanted by March 1, said lobbyist Charles Bacchi of the California Chamber of Commerce.

Democratic legislators, who control both houses, say they’ll probably try to fix the hole in the division’s funding with a special budget authorization or an urgent “cleanup” bill.

Either action would require passage by two-thirds votes in the state Senate and Assembly and a signature from the governor. A spokesman for the state Department of Finance says the governor’s office is looking at its options.