Building industry expects to get hammered by higher L&I rate - Higher-risk industries will absorb bulk of workers' comp increase

12/3/02

Mike Salsbury/The Olympian

Dave DeVenny, a carpenter for Childress Building Co., constructs a patio cover Monday in Thurston County. With a 29 percent average increase in the cost of worker's compensation insurance, he and his employer face extra costs of doing business, he said.



"I'd rather be able to give my good people a 15 percent raise." Michael Kerry, co-owner of Blackhills Construction

To Bill Childress, a 29 percent rise in workers' compensation rates won't be catastrophic to his construction business, but it will sting.

Eventually, his higher labor costs will bump up the price of a house, making it tougher for first-time buyers to afford a home, he said.

"We're putting family housing out of reach of families," said Childress, president of Childress Building Co. in Olympia.

The Department of Labor and Industries originally proposed raising workers' comp rates by an average of 40.5 percent, but opted for a smaller increase last week at the urging of Gov. Gary Locke and business groups.

The new rates go into effect Jan. 1.

L&I must ratchet up premiums to keep the state's reserve fund -- used to pay injured workers for lost time during a budget crunch or large industrial accident -- from drying up, L&I officials said.

Business and labor leaders think the rates still will be too high, though the two camps differ on how to solve L&I's funding problems and how to curb the rates.

Employers in higher-risk industries, such as construction, logging and farming, will absorb the heftiest increases.

Employers pay about two-thirds of workers' comp costs, and employees shoulder one-third.

The actual dollar amount that workers and employers pay will vary. In hazardous industries, employers pay higher premiums.

For instance, a 26 percent increase will be imposed on roofing outfits. Employees will pay an additional $706 yearly, and employers will fork out an additional $1,289 yearly per worker.

In contrast, a 32 percent increase placed on vegetable farms will result in a fruit picker paying $69 more a year, and the owner paying $167 yearly per worker.

By making each worker more costly, employers have less money for pay raises, Childress said.

"I'd rather be able to give my good people a 15 percent raise," said Michael Kerry, co-owner of Blackhills Construction.

What's more, beefier rates will put a crimp on hiring, even if a company is busier and needs more help, Kerry said.

Kerry figures the new rates will add about $11,000 in yearly costs to his roofing business and more than $6,000 a year to his carpentry labor costs.

On smaller jobs, he will have a tougher time outbidding self-employed roofers who do their own work and, thus, can dispense with workers' comp, Kerry said. "It's hard in the roofing industry to take that big of a hit and stay competitive."

The strong 1990s economy earned L&I healthy returns on its investments, allowing it to give employers $1.8 billion in rebates and reduced rates during an eight-year period.

In recent years, a weakened financial market, a rising number of claims and a court-ordered increase in workers' benefits has forced L&I to boost rates, said Robert T. Nelson, agency spokesman.

"It's a prudent amount of money to get us through next year," Nelson said.

Ideally, the agency sets aside 10 percent of the money it collects each year through the workers' comp program, Nelson said. The pending rate increase will put next year's reserve fund at 2 percent. The rate increase will be hard on some employers during a sluggish economy, but it's the cost of doing business in Washington state, Nelson said.

In fact, after the higher rates go into effect, Washington's premiums will still be lower than in most states, Nelson said. "Our rates are still in the bottom quarter of the country."

Childress, the contractor, thinks L&I got itself into its financial trouble through inefficiency and now wants taxpayers to bail it out.

"I blame it on waste and abuse," Childress said.

Nelson acknowledged that L&I has some inefficiencies, though he thinks critics have overstated the problems.

Enforcement

L&I plans to crack down on claims, Nelson said.

For instance, L&I might impose a time limit on hearing-loss cases, for which it pays an estimated $40 million a year more than it should, he said.

Jeff Johnson, of the Washington State Labor Council, said the agency fell into its mire in large part by giving businesses bloated rebates, including $200 million in 1999 and again in 2000.

Now L&I will impose an onerous rate increase on employers while doing little to replenish the severely depleted reserve fund, Johnson said. "We think it's a shameful proposal, and we think they ought to go back to the drawing board."

Next year, L&I should scale back the money it gives employers who improve their accident records, Johnson said. About half the state's employers are enrolled in this program, known as the "retro fund," he said.

If L&I gave employers enough money to run their accident-prevention programs in the workplace -- and nothing more -- the agency could reduce the rate increase to 19 percent, Johnson said.

L&I then would have the money to beef up the reserve fund to a decent level, and it wouldn't have to deny the claims of the hearing-impaired and other disabled workers, Johnson said.

Childress said that what galls him about shelling higher premiums is that he has fewer accidents at his work sites.

"We've had a very, very good safety record," he said.

Kathy Thomsen, who co-owns Thomsen Timber, figures she will pay $4,000 to $5,000 more next year for her eight workers.

That's pretty steep for a small business, she said. Still, being a mechanized logging outfit, Thomsen will pay much less than companies that send loggers out in the woods with no heavy equipment to protect them.

The logging industry gets slapped with some of the highest premiums, even though it has improved its self-policing, Thomsen said.

"It doesn't hurt anybody but us when somebody gets hurt," she said.