Alarms Sounded Over County’s Workers Compensation Reserves

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Declining reserve balances for workers’ compensation have Orange County finance officials sounding alarm bells.

The county’s current workers compensation self-insurance fund is funded at 60 percent of expected losses over a five-year period. Meanwhile, the county’s property and casualty risk self-insurance fund has dropped to a 55 percent funding level.

In a report to county supervisors, county finance staffers propose that the workers comp fund be held steady at an 80 percent ratio and the property and casualty fund should be at 75 percent.

On Tuesday, supervisors unanimously endorsed the approach.

The report is the result of a county performance audit in January that found the county does not have a policy for reserve levels for the internal self-insurance fund. That report suggests that supervisors consider adopting a policy.

The issue highlights how county supervisors have been offsetting rising personnel costs, especially in public safety, by raiding internal funds like workers compensation.

From the report:

The current funding policies, while resulting in lower funding levels than optimally desired, reflect the balancing of priorities during the recession. A stricter policy would have resulted in higher charges to the County departments including the Sheriff’s department (about 40% of all Liability/Worker’s Compensation charges). This in turn would have resulted in increased costs to contract partners and the County General Fund (Net County Cost). As the Board is aware, the Sheriff requested a delay in the rate increases for these programs in last year’s budget process. With a stricter Funding Policy, the rate increases would have been higher than those implemented.

Adoption of the staff recommendation will reverse that practice but also trigger increases in county personnel costs for each department.

County finance staff are proposing to phase in the increases at 10 percent each year (about $2 to $3 million per department) for the next five years.

Board of Supervisors Chairman John Moorlach highlighted the practice in his state-of-the-county address earlier this year.

Moorlach said he’s curious about the proper level of funding for such reserves and how fast they should be restored. He’s also wondering what county leaders can do to offer workers incentives that lower such costs.

“It’s another liability,” Moorlach said, “so we have to ask what kind of legacy does this board leave to others.”

— NORBERTO SANTANA JR.

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