State Closed. Take Your Business Elsewhere.

2012 was the year California hung signs at all its border crossings:

"State Closed. Take Your Business Elsewhere."

Proposition 30, which the Brown Administration fought hard to pass, imposes retroactive income taxes and increased sales taxes to generate more money for law and emergency services, and for education without specifying how that money actually is supposed to be used, making California the most taxing state in the nation.

SB 863, which I believe was a Brown Administration capitulation to Big Business and Big Labor in exchange for their support of Prop 30, adds to the tax burden by shifting governmental responsibilities to the private sector with a small, almost hidden, provision that most commentators have failed to recognize: an amendment to Labor Code Section 3702.5(a)(1) to provide that “the cost of administration of the public self-insured program by the Director of Industrial Relations shall be borne by the Workers’ Compensation Administration Revolving Fund,” rather than by the state’s general fund.

The Department of Industrial Relations sent letters to insurers and self-insured employers on Friday advising that their workers' compensation related assessments will increase 44% next year, while self-insured employers will see a 35% hike in their assessments.

I'm old. My memory isn't that good any more. But I believe this is the single largest percentage increase in employer assessments ever.

These assessments are tacked onto policy premiums and self insured deposits to fund the operations of the Division of Workers’ Compensation and the Division of Occupational Safety and Health, and partially fund the Division of Labor Standards Enforcement (I assume it won't be long until that division is also the sole responsibility of premium assessment too).

They are, essentially, taxes but aren't called taxes because they aren't collected by the Board of Equalization (I've always thought that was the most ironic of government agency names...).

The department said it needs $565.5 million to fund these agencies, anti-fraud efforts and the uninsured employer fund in 2013, 15% more than the $492.2 million it said it needed in 2012.

This is the same department that entered the political foray by publicly supporting SB 863, and which is projecting large phantom savings from these new laws which add many layers of complexity to an already complex system using math that is so controversial that no actuarial professional can agree on whether there will be any savings at all, let alone how much.

The largest increase in aggregate assessments is in the Workers’ Compensation Administration Revolving Fund (WCARF), which funds the day-to-day operations of the Division of Workers’ Compensation. The department said it needs $303 million for the fund in 2013, 21% more than the $251.2 million needed last year.

Part of the surge in funding the WCARF is that there is less money in the kitty left over from last year than in previous budget years. In 2012, the account balance was $162.5 million. Together with debits for undercollections from the previous year, the net charged to employers was $118.4 million. For 2013, the fund balance is only $137.8 million, and the department also has to issue credits of $25.7 million for overcollections in 2012, resulting in a net assessment to employers of $190.9 million. The department's methodology is here.

The methodology published by the department, however, doesn't indicate how much of the current assessment is attributable to the shift in financial responsibility created by Labor Code 3702.5.

Another other area where legislators stuck it to California business in the 2013 assessment comes from a diversion of money done in 2011, when lawmakers passed Assembly Bill 436 by Jose Solorio, D-Santa Ana (who was also a co-author of SB 863).

AB 436 authorized a $4.3 million loan from the Uninsured Employers Benefit Trust Fund to the State Public Workers Enforcement Fund to create a new unit to monitor prevailing wage issues on public works projects.

The aggregate assessment for the uninsured employer fund increased 35% to $57.3 million in 2013 from $42.4 million in 2012. However, because the fund balance dropped to $11.9 million from $31.3 million, the net assessment on employers will be $47.3 million in 2013, more than three times the $15.3 million they paid this year.

Thank you Mr. Solorio. It's a shame that you're not in my voting district so that I could ensure my ballot was not cast in your direction.

Everything that comes under the management of the department went up:

• The aggregate assessment for the Subsequent Injuries Benefit Trust Fund is increasing to $34.8 million from $28.3 million. The net charged to employers will increase to $24.2 million from $16.8 million.
• The aggregate assessment for the Workers’ Compensation Fraud Account is unchanged at $53.4 million. Because of a smaller fund balance and credits for overcollections, the net charge to businesses is $52.3 million, compared to $40.2 million for 2012.
• The aggregate assessment for the Occupational Safety and Health Fund was reduced to $59.4 million from $60.3 million. The final charge to employers, however, will increase to $38.7 million from $32.9 million.
• The Labor Enforcement and Compliance Fund aggregate assessment increased to $57.5 million from $56.6 million. The charge to employers is increasing to $38 million from $35.8 million.

The WCARF was created in 2004 via SB 228 (Alarcon). That was a slick political maneuver by then Gov. Gray Davis to shift complete responsibility for the expenses of a public agency onto the state's businesses.

Prior to 2004 the DWC was funded 70% through the General Fund and 30% through employer policy assessments. SB 228 changed that to 100% funding through policy assessments.

The reason for the change, it was argued back in 2003, was because employers of the state deserved to have consistency, reliability and dependability on a state agency so critical to employment operations - and realistically the extra 70% on employer policies did not impose that much of a burden on any single employer.

The employer community was mad at the time, but accepted the tax increase on the basis that they would get value in return - dedicated operations to make workers' compensation go smoothly so that injured workers' disputes could be resolved more quickly, return to work faster and thereby reduce negative X-mod consequences.

But as we saw through the years since that argument was complete malarkey. There was no truth to the argument at all. In fact, during the tough times of the last recession DWC operations were curtailed just as much as those agencies subject to the General Fund.

And SB 863 did the same thing - shift complete responsibility for the expenses of public agencies onto the state's businesses.

I keep hearing anecdotally that citizens are abandoning California, that businesses are relocating, that the state is shutting out its most fervent advocates by making it near impossible to afford to live or do business here.

The optimist in me kept saying that California has one thing that no other state has and which keeps smart people here regardless of its taxes - and that would be the weather. I always figured that smart people, given a choice, will migrate to where the weather is best and will figure out how to deal with the expense of that weather.

I'm not so optimistic now. California's government is clearly saying to its people that it can not manage money, that it will use deceit and trickery to cheat more money out of its people, and that there is no accountability in the long term because politicians have no reason to be accountable - their offices are all subject to term limits so there is no "career" to be made out of consistent public service.

I love California. I'm just not IN love with California. To those of you who denigrate our (formerly) great state - I too am having a difficult time justifying why I live and do business here. At some point in time, even I will have to capitulate and realize that it just isn't worth it.