Friday, March 8, 2013

Cuomo's NYSIF Raid - Just More Taxes

I have not hidden my distate for lawmakers that see the state workers' compensation insurance fund as their piggy bank, ready to be broken any time a few extra dollars are needed to make up for some budgetary deficit.

So it was with a bit of interest that I read this morning that some New Yorkers are calling for the rejection of Gov. Cuomo's proposal to raid the State Insurance Fund (NYSIF) reserves of $1.75 billion.

I know that Cuomo's administration doesn't like to call it a raid - they think that's too strong of a position.

I don't care - that's what it is. Because reserves are in place for one thing only - to pay the claims of people injured on the job and to make sure there's enough to pay for them in the future in a financially sound way.

Four builders' exchanges and the New York Council of Nonprofits have called on lawmakers during the past two weeks to defeat a section of Cuomo's $142.6 billion budget that will transfer $250 million from NYSIF reserves to the state's General Fund on April 1 and another $500 million to the Transformative Capital Fund.

The 2013-2014 budget includes a five-year plan that would transfer another $500 million to the state general revenue fund in 2014, $250 million in 2015 and $250 million in 2016.

Cuomo's people say NYSIF doesn't need the money because it was for assessments to support the New York State Workers' Compensation Board (WCB), to pay claims from the state's Reopened Case Fund and to pay off legacy claims from the Special Disability Fund, which lawmakers closed to new claims in 2007.

The argument made by Cuomo's administration is that the WCB now requires NYSIF to pay those assessments as a percentage of its losses, so the cost of the assessments must be tacked onto claims reserves. In addition, proposed legislation accompanying Cuomo's budget plan would assess NYSIF by percentage of premiums, as private carriers are, starting April 1.

The plan would also would consolidate the 18.8% in assessments – the highest in the nation – and close the Reopened Case Fund.

The Council of Nonprofits said the NYSIF has paid the assessments but has not passed the cost of the state's levy for the Special Disability Fund – about 9.6% of premiums – along to policyholders because of its substantial reserves. 

Thus, Cuomo's proposal is actually imposing a hidden tax on businesses of about 10%.

This is the kind of stuff that makes business owners scream about the cost of workers' compensation when the actual financial imposition of providing this protection to workers is much less. Not only is a big chunk of the cost unrelated to the actual delivery of the product but is the kind of sudden, dramatic spike that causes havoc with business plans and budgets.

Cuomo's proposal also includes the issuance of $800 million in bonds to pay off claims from failed group self-insured trusts. The bonds would be repaid through assessments on former trust members.

In other, more direct terms, more taxes without any benefit to those being taxed - bonds are borrowed money and will need to be paid back.

According to the WorkCompCentral story, Cuomo's plan is supported by the American Insurance Association and the Independent Insurance Agents & Brokers of New York. They complain that the NYSIF for too long has had a competitive advantage by passing some of the cost of the state's assessments along to policyholders.

I'm guessing my limited math skills get in the way of understanding this argument. The way I see it Cuomo's plan would actually end up costing policyholders even more via assessments. Perhaps the argument is that the competitive advantage is not on the marketing side, but on the operational side of insurance companies.

According to the Cuomo budget, the NYSIF raid will provide hundreds of millions of dollars for government construction projects.

Contractors aren't buying that.

Aaron Hilger, executive director of the Builders Exchange of Rochester, put it best in my opinion:

"A lot of our members were shuffled into the New York State Insurance Fund when the ABC trust closed down. We think that if there is excess money in the fund, it ought to go back to policyholders. We'd love to see more construction business, but we don't think taking money out of the Insurance Fund is the best approach... We have no guarantee that the State Insurance Fund will be able to pay claims down the road."

If the Cuomo administration thinks that NYSIF is harboring too much in reserves then the answer is, as Hilger suggests, to return that money to policyholders, not to shift it to some other, unrelated, purpose.



  2. This makes me sick. NYS is one of the worst states to have a injury in and if your injury is serious it is so much worse. How about helping the people that have a permanent disability prior to the 2007 who are the worst off? The whole system needs to be fixed and NYS cannot dig into the fund, it is unethical as other insurance company's cannot do the same. NYS as a governing body has a ethical standard it should live up to. It has to follow the same rules it makes for everyone else. I feel as being a government body its first priority should be to the injured, not the bank account. Raiding this fund (wow how did it ever get this big and at whos expense?) is proof of the mismanagement of the funds and the excessive burden the employers have to pay. Its not like the injured do anything other than go to the poor house. So where is it going....