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Top Finance Official Warns of Sharp Rise in Santa Monica Workers’ Compensation Costs

 

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By Niki Cervantes
Staff Writer

January 3, 2017 -- The City of Santa Monica’s costs for workers’ compensation rose sharply last fiscal year, prompting a warning by the City's finance director that a 53 percent increase in funding likely will be needed soon.

The City spent approximately $9.3 million on medical treatment and indemnity payments for injured employees in the 2015-2016 fiscal year, Finance Director Gigi Decallaves said in her final report last year.

That was a 22 percent increase from the previous fiscal year, when the City spent $7.6 million on disabilities, mostly due to the aging of its workforce, especially in its police and fire departments and its bus system.

The City has 564 cases still on its books, a number that Decavalles said has been steady in recent years.

Although the City made some “modest” gains, such as slowing the frequency of claims in some departments, the improvements were “eclipsed” by higher program expenses, such as cash flow, and total liabilities, or the value of all open claims from 1979 forward.

The City spent another $10.5 million on those costs in fiscal year 2015-2016, a 19 percent jump from the previous year, Decavalles said.

Worse still, the City’s few spots of good news were “completely over-shadowed” by “substantial growth” in the average cost per claim because of higher permanent and temporary disability expenses, she said.

“Moreover, the City’s claim profile is cause for concern,” she said. “A high frequency of continuous trauma-oriented injuries, coupled with an aging workforce, suggests that program costs will continue to rise well into the future.”

Both temporary and permanent disability cases were the City’s biggest problem.

The report blamed climbing costs for permanent disability expenses on 2012 state legislation that mandated an overall 30 percent hike in the award schedule. It rose 64 percent, from $1.4 million last fiscal year to $2.6 million this year for the City.

Temporary disability costs grew as well, driven by the lengthening amount of time employees of the Fire Department and Big Blue Bus system were granted to recover from injuries. Those cases totaled $3.1 million this fiscal year, a 19 percent hike from last year’s $2.6 million.

Workers compensation costs have been rising steadily the last five years in Santa Monica and throughout California since changes were made to the state laws governing the program.

But a particularly difficult problem for Santa Monica is the dominance of “cumulative trauma oriented” injuries, which are common among an aging workforce like the City’s.

These types of injuries stem from years of repetitive and/or physically demanding tasks, she said, such as lower-back problems from heavy lifting and wrist injuries from excessive typing.

Such problems, as opposed to injuries caused by a specific incident, “are extremely costly and nearly impossible to avoid,” Decavalles said.

Between the Labor Code's “claim compensability threshold,” which makes the employer responsible if the job contributed to at least 1 percent of the injury, and the “no fault” premise of the workers’ compensation system, "most any ache or pain remotely connected to work is compensable,” she said.

This fiscal year, the City settled 131 claims for a total of more than $3.2 million –- an increase of almost 80 percent from the $1.8 million paid out for 98 settlements last year.

In both years, most of the settlements were reached via “stipulation agreements,” which set a permanent disability payment to the employee, plus any future medical treatment for the remainder of the injury.

The City also negotiates “Compromise and Release” agreements for injured employees who had stopped working for the City at the time of the claim settlement.

In all, workers’ compensation total liabilities increased to $27.8 million by June 30, 2016, up from $25.7 million a year earlier, an eight percent increase, Decavalles said.

Most of increase occurred in the Fire Department, followed by the Police Department and the Big Blue Bus (BBB), she said.

Decavalles called the rising compensation coats during fiscal year 2015-2016 an “adverse experience” that is going to be felt “going forward.”

The City’s Workers’ Compensation Self-Insurance Fund for the 2017-2018 year will need to be increased by $7.1 million, or from $13.4 million to $20.5 million -- or 53 percent -- to “maintain an adequate confidence level,” the report said.

Preliminary indications are that the City’s General Fund in the budget will absorb about half the increase, according to the report. The balance will be taken from other City funds.

Santa Monica has approximately 2,200 full-time employees, City officials have said.


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