Davis Works Out Workers’ Comp Benefits Hike

Gov. Gray Davis has struck a deal with organized labor, trial lawyers and Democratic lawmakers to raise benefits for injured workers while also limiting employers’ costs for providing workers’ compensation, administration officials said Thursday.

The agreement averts an election-year fight between Davis and some of his major backers, and it’s a significant victory for labor and attorneys who represent injured workers.

Legislation being drafted Thursday would boost benefits for injured workers from the current $490 a week to $602 starting in January 2003, and to $840 by 2006. Beyond 2006, benefits would rise automatically based on the annual percentage that wages increase in California--a major change long sought by organized labor.

Benefits also would double by 2006 for family members of workers killed on the job, from the current high of $160,000.

Altogether, the Department of Industrial Relations estimates that the benefits package will cost an extra $2.4 billion a year. Administration officials say the rising costs will be tempered by a system overhaul that could save businesses $1.5 billion annually.

“It’s time for a benefit increase,” said Stephen Smith, head of the Department of Industrial Relations and Davis’ top labor aide. “We also needed to get some system reforms. The governor has to take a close look at the final wording. But we are very encouraged by the progress we have made.”

The state Senate is expected to take up the bill Monday, followed quickly by the Assembly. Its passage is likely, given that Democrats hold a significant majority in both houses, and Senate President Pro Tem John Burton (D-San Francisco) is among the leading advocates of a benefit hike. The bill could arrive on Davis’ desk next week.

“We’re 49th out of 50 states in how we treat injured workers; that’s just scandalous,” Burton said.

Business Groups Vow

to Oppose Measure

In each of his first three years in office, Davis vetoed bills to raise workers’ comp benefits. After the Democratic governor issued the veto last year, Burton threatened an initiative, and union leaders became increasingly angry.

Labor is Davis’ single biggest source of campaign money, providing him a combined $5.5 million in donations since he took office in 1999, or roughly 13.4% of the total he has raised, according to a Times analysis.

Some business representatives viewed the agreement reached Thursday as an improvement from past measures that Davis vetoed at their urging. By reaching the agreement, Davis--as well as businesses and labor--will avoid what would be a major initiative war in November, when he must face reelection. The initiative being contemplated could raise benefits by as much as $6 billion.

“Assuming that the bill is signed, there would be no need for an initiative,” said Tom Rankin of the California Labor Federation, a major force behind the benefit hike. But while an initiative war will be averted, business groups vowed to oppose the new legislation, to be carried by Burton and Assemblyman Tom Calderon (D-Montebello).

“This is a very, very large hit on employers,” said Willie Washington, lobbyist for the California Manufacturers and Technology Assn. “We’re going to alert our members and put as much pressure on the Legislature and governor as we can. It is just not acceptable. We’re in a downturn. This will be bury a lot of manufacturers.”

Business groups largely were cut out of the negotiations leading to the agreement, while organized labor leaders and attorneys who represent injured workers were at the table.

“Not having seen the language,” said California Chamber of Commerce President Allan Zaremberg, “the disparity between the benefit increases and the savings is very significant and would lead to additional premium increases, and therefore we are still opposed.”

The Legislature last made significant changes to the workers’ compensation program in the mid-1990s. A task force study for then-Gov. Pete Wilson cited the cost of workers’ compensation as a major reason for business failures in California.

At that time, the report said, the system cost employers $11 billion a year, while Californians hurt on the job were receiving among the lowest benefits in the nation. After changes to the system, employer costs dropped to $8 billion. Critics of the Wilson-era changes say that while employees saved money, injured workers received only modest increases.

Zaremberg said workers’ compensation insurance premiums paid by employers have jumped 77% since 1997 to almost $12 billion. Overall, the system is expected to cost $15.2 billion by 2003.

How Would Bill Save

Money for Employers?

Parts of the proposal are aimed at saving money for employers.

The state would use money from taxes levied on workers’ compensation insurance premiums to subsidize employers by paying part of the wages of injured workers who return to work early. In 2004, when the state subsidy would begin, the state anticipates spending about $87 million. However, employers could save $96 million by having workers return to work early, the administration estimates.

The fast-rising cost of providing medical care, which accounts for 53% of the money spent on workers’ comp, also is a target of the proposal. The Davis administration hopes to expand the use of managed health care in the workers’ comp system, and expects large health maintenance organizations such as Kaiser to enter the field.

Additionally, the state plans to develop fee schedules for surgery and pharmaceuticals commonly used to treat injured employees. Combined, the changes in health care could save $500 million a year, according to the Department of Industrial Relations.

The administration believes the biggest cost savings will come from a change in current law that says the opinion of doctors who treat injured workers are presumed to be correct. Employers may be able to find less costly ways of properly treating injured workers.