There's been a lot of speculation as to how the law of COLAS will develop.

I'm not talking potential taxes on sugary drinks as part of a national healthcare reform bill.

I'm talking about the cost of living increases under California Labor Code 4659(c). That COLA affects life pension cases (where the percentage of disability is 70% or more) and permanent total disability cases. The COLA statute was enacted in 2002 and was not repealed as part of the 2004 SB 899 comp reform. The COLA calculations apply only to injuries after January 1, 2003.

Under the terms of Labor Code 4659(c):
"an employee who becomes entitled to receive a life pension or total permanent disability indemnity...shall have that payment increased annually commencing on January 1, 2004, and each January 1 thereafter, by an amount equal to the percentage increase in the "state average weekly wage" as compared to the prior year"

The California Court of Appeal, 6th District has now rendered its opinion as to the start date for calculating cost of living increases under the COLA.

That decision, in a decision ordered published, John Duncan vs. Workers Compensation Appeals Board and X.S., can be found here:
http://www.courtinfo.ca.gov/opinions/do ... 034040.PDF

The 6th District opinion (which is likely to be appealed to the California Supreme Court) holds that cost of living adjustments are to be added to payments starting January 1, 2004 and every January 1 thereafter.

This is a big win for Marc Marcus of Sacramento, who briefed the case on behalf of the California Applicants Attorneys Association in a friend of the court brief. Marcus contended that the COLA calculation should start as of January 1, 2004, the start date of the first COLA.

Also arguing on behalf of the claimant was Art Johnson of San Jose, one of the most creative applicant attorneys in California.

The 6th District adopted this argument on a "plain meaning" interpretation. The court noted that:
"We presume that the Legislature could have written the statute to include the date of injury, or the permanent and stationary date, or the date when the life pension starts to commence the COLAS, but the legislature did not. rather, the legislature chose January 1. 2004 as the start date of the first COLA."

The court rejected two other approaches:
-a COLA increase start date as of the date life pension or permanent total payments were actually due
-a COLA increase start date as of the date of the injury

This decision is already coming under attack from some defense attorneys. Frequent commentator Richard Jacobsmeyer of Oakland's Shaw, Jacobsmeyer, Crain and Claffey sent an eblast titled "Appellate Court Provides Potential Windfall in Life and PTD Cases".

Jacobsmeyer (who, along with San Francisco's Jeff Greenberg, sat on an educational panel on COLA issues with me at a 2008 CAAA conference and co- authored an article on COLAs for the publication of the State Bar Workers Compensation section) argues that a better interpretation would be to make the COLA calculations run from the date of the injury. Jacobsmeyer reasons that such a calculation would reflect the policy of preventing erosion of PTD and life pension benefits by inflation. But Jacobsmeyer argues that backdating COLA calculations to 1/1/04 will result in a double dip COLA in permanent total cases. In his view the result could be that payments in permanent total cases will outstrip the employee's earnings, due to the interaction of the COLA and SAWW (state average weekly wage) increases.

That will undoubtedly be the focus of attack by opponents of this decision.

Proponents of the decision will note that the legislature did not tinker with the decision in 2004, and the 6th District's plain meaning reading of the statute is elegantly simple. They also will want to note that the statute applies to seriously injured workers.

The argument could be made that the California comp system needs to be reformed to take better care of the most substantially disabled workers. This decision trends in that direction.

If the California Supreme Court elects not to review this case, the issue may crop up in other Court of Appeal districts.

Stay tuned.

Julius Young
www.boxerlaw.com

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:
http://www.cwci.org/press_release.html?id=132

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 Workcompcentral.com (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 workcompcentral.com 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
www.boxerlaw.com

My Bourbon Red (last post) will have to wait until another year.

If you've been out scurrying around for Black Friday deals, perhaps you're ready to take a respite and contemplate California's challenges......

Would you be willing to pay higher taxes to keep funding for schools, state transit and water projects, health services and the University of California? Robert Cruickshank thinks you would....

With an interesting historical perspective going back to the days of Upton Sinclair, here's Cruickshank's argument from the site Calitics:
http://calitics.com/diary/10559/californias-new-deal

In a coming post I'll cover the recent increase in workers' comp assessments on California employers and the reaction of some in the comp community.

Stay tuned.

Julius Young
www.boxerlaw.com

Someday I'm gonna try a Bourbon Red.

In case you're wondering, it's not a stash of Humboldt County weed (like Bill Clinton, that's never been my thing). And no, the New Riders of the Purple Sage never sang the praises of Bourbon Red.

While I'm at it, I'd like to try a Black Spanish. And a Narragansett.

They're turkeys. Heirloom, old style turkeys.

Don't get me wrong, I love butterballs. But there's something intriguing about eating what our ancestors ate.

There are limits to my retro-culinary interests. I'll pass on medieval dining:
http://www.medievalcookery.com/menus.html

But free range birds, though pricey, harken back to a simpler, and perhaps healthier time.

As out economy goes through cathartic throes, I suspect that more people will be planting vegetable gardens, canning food, and finding more ways to be self-reliant. For some folks this is a hobby. For others it is a way of survival.

Some cities are revisiting issues about raising farm animals within their city limits.There are urban farmer groups:
http://www.meetup.com/Los-Angeles-Urban ... thusiasts/

There is a trend toward urban foraging:
http://forageoakland.blogspot.com/

Will we see more urban agricultural workers in the future? Probably not, but we will see some workers who moonlight as farmers.

Meanwhile, here's hoping that all you readers enjoy your holiday whether its vegan or features a Butterball or Bourbon Red.

Julius Young
www.boxerlaw.com

Many a California injured worker finds him or herself depending on unemployment at some point after the injury. Frequently this occurs when a worker is laid off after an injury. The worker may be unable to prove that the layoff was discriminatory (under Labor Code 132a or FEHA), and draws unemployment benefits as an alternative.

So it's disturbing to see how far into the red California's unemployment insurance fund has fallen.

Current projections are that the unemployment insurance fund will be $7.4 billion in the red by the end of 2009. The Federal government has already loaned $4.7 billion to California, a loan that is to be paid back by 2011.

You can add that to the list of nightmare scenarios in the financial train wreck we call the State of California. Current projections are that the legislature must deal with a $20.7 billion dollar shortfall in the 2010 budget cycle.

Do you realize how huge that is? California higher education funding in the 2009-2010 budget is $10.5 billion. Corrections (you know them as prisons) amount to $8.2 billion in the current California budget.Health and human services funding is $24.9 billion.

To balance the budget without revenue increases all higher education and prisons could be closed and we'd be almost there! Wahoo!

Or we could eliminate ALL state health and human services funding
and we'd be there, with a little money to spare! Yippee!

But back to the California unemployment insurance fund.

Possible solutions to the unemployment insurance fund shortfall are very few. They boil down to either cutting UI benefits or raising employer contributions, or both. One approach could be to raise the threshold on a worker's pay on which the employer pays UI premiums (currently UI is based on the first $7,000 of a worker's pay, which is lower than the portion on which some states base their UI assessments on employers).

Perhaps a "second stimulus" could include funds to help California and the other 24 states that are in arrears on their UI programs, but it's not clear that there is the political will to pass more stimulus. Some liberal Democratic pundits, including Princeton's Nobel prize winning economics prof Paul Krugman, are angry that the Obama administration is not fighting for more stimulus:
http://www.nytimes.com/2009/11/23/opini ... amp;st=cse

Others counter that the U.S is on the verge of foundering on a sea of debt that we will be increasingly unable to service. They cite a falling dollar and a rush to gold in world markets as signs that our economy
lacks stability. Here's "Wave of Debt Repayments Facing U.S. Government" by Edmund Andrews:
http://www.nytimes.com/2009/11/23/busin ... amp;st=cse

All of this makes it difficult for Uncle Sam to keep coming to the rescue of our once Golden State.

This is the kind of issue that has the potential to affect workers' comp in other ways, as well. The issue is so critical to labor interests and employers that it represents another bargaining chip-along with comp-in the legislative agendas. In a recent encounter with a seasoned insurance industry observer, I was advised to keep my eye on the UI fund issue.

Stay tuned.

Julius Young
www.boxerlaw.com