Your eyes on California Government

Katy Grimes: State Fund insurance announced last week that it will lay off 1,800 to 2,500 employees because of workers compensation reform — enacted in 2004.

State Compensation Insurance Fund, the state’s last resort workers compensation insurance carrier, has had eight years to adjust as business fell off, but instead carried most of its government employees, slowly whittling down from its high of 9,300 employees.

The state-created workers comp insurer’s business fell to 15 percent of the market last year, from 52 percent in 2004 when workers comp reform was enacted by Gov. Arnold Schwarzenegger. Revenue for State Fund from insurance premiums is only one-eighth of what it was six years ago, but the agency kept the staff on board.

What have these employees been doing everyday for the past eight years?

Here’s the answer: “Margarita Maldonado, vice president of bargaining for Service Employees International Union Local 1000 issued a statement calling the layoff announcement “outrageous.” She promised the union would “do everything possible to mitigate the effects of these reductions” for the 5,500 fund employees it represents,” reported an insurance industry website.

State Fund is laying off one-fourth of its 7,300 employees, but said that its business is off by 85 percent.  The math just does not add up. Perhaps the agency would lay off more employees, if they could get past the SEIU.

“State Fund is a state agency staffed by government workers. But it operates as an independent company and does not rely on funding from the state treasury. State Fund is governed by a board of directors, mainly appointed by the governor,” reported the Los Angeles Times.

Real businesses use ratios to calculate operating costs. If State Fund plans on saving $350,000,000 by laying off 1,800 employees, each of those employees cost the insurer $194,400. Using $194,400 for each State Fund employee, the agency should have been bringing in $1.32 billion in premiums. In 2010 State Fund was able to collect about $1 billion in premiums.

The letter to employees from the State Fund President read:

From: Tom Rowe 
Sent: Thursday, October 06, 2011 11:58 AM
To: SCIF AllUsers
Subject: Important Announcement

I’m writing today to share some important news about restructuring at State Fund. We have decided to implement in 2012 a reduction in force that will eliminate between 1,500 and 1,800 positions. The positions being eliminated are in areas where business processes have changed significantly enough that work has been substantially reduced.

As you may know, we operate at an expense ratio over 90 percent. We spend more operating the company than we do on benefits to injured employees.

To better understand our staffing requirements, we conducted a detailed review of all aspects of State Fund’s business. This work included comparing ourselves to other state funds and specialty companies that write workers’ compensation in California. Like most insurance companies, the biggest operating expense is staffing.

After reviewing all the data and adjusting our findings to account for operations/obligations unique to State Fund we determined that by the end of 2011 we will be overstaffed by more than 30 percent – approximately 2,000 positions companywide.

We don’t have all the details yet, but we anticipate layoffs being effective by the 2nd Quarter of 2012. A brief Q&A is attached and we will share more details as we have them. We will do this as respectfully as possible and are prepared to invest significantly in doing the right things by employees who are displaced. We will actively engage the Union in this process.

Additionally some employees will be transferred into a temporary resource program to provide staff for short-term corporate projects, as well as be provided opportunities to develop skills better aligned with current and future business needs.

Program managers and executives will be holding town-hall meetings in all programs over the next few weeks with staff to review the plan and answer questions.

Although painful, I am confident that in the long term, the moves we are taking will help stabilize the workers’ compensation market and State Fund’s position in it as a strong, efficient and fairly priced choice for California’s businesses.

Sincerely,

Tom Rowe

Will other state agencies be following suit? State Fund’s overstaffing was a little more obvious than some of the state’s other agencies, but waste is waste. Everyone knows someone who works for the state who reports gross waste, and employees who do little or no work. But unions are standing in the way of state agencies needing to make staffing adjustments.

OCT. 14, 2011

Tags: Arnold Schwarzenegger, California, California budget, California Legislature, government, inflation, Jerry Brown, jobs, Katy Grimes, legislature, Public Employee Unions, State Compensation Insurance Fund, unemployment, waste