Worker's Compensation Legislation Passes
California takes a giant first step in regaining its economic luster
SACRAMENTO - 04/17/04 - California Governor Arnold Schwarzenegger and the state legislature have reached a landmark agreement to reform the state's worker's compensation system.
The landmark legislation? - a major step towards removing what many have felt is one of the most significant impediments to business growth and job creation - was approved by a Senate vote of 33-3, following a 77-3 vote in the Assembly.
The Governor will sign the bill, which will become effective immediately, at a ceremony at the Boeing Co. aircraft factory in Long Beach.
The legislation calls for sharp cuts in what are the nation's highest rates for workers' compensation insurance by 25% to 30% while at the same time boosting some of the nation's lowest rates paid to injured workers.
Schwarzenegger, a Republican who defeated second-term Democrat Gray Davis in last year's historic October recall election, made workers' compensation reform a centerpiece of his run for governor.
The Governor made headlines over the past several weeks by publicly threatening to bring the issue to the state's voters through a November ballot initiative if the legislature failed to act on his package of reform proposals.
A political committee backed by $1.6 million in Schwarzenegger campaign funds, said it had gathered more than 1 million signatures to qualify the issue for the November ballot and was prepared to turn them if the legislature didn't act by the Governor's deadline. The group needed 598,105 signatures.
Just last month, he persuaded voters to approve $15 billion in borrowing to ease the state's budget deficit.
The workers compensation bill is considered a major victory for businesses, local governments and nonprofit groups in California that have seen their costs for workers' compensation insurance double and triple since 2000.
Though specific savings remain unknown, the overhaul is projected to eventually save employers several billion dollars yearly by setting new limits on medical benefits and standardizing treatment to American Medical Association guidelines.
California's workers' compensation costs have soared in recent years from $6.4 billion in claims paid in 1997 to an estimated $17.9 billion paid last year. The average employer cost of dealing with workplace injuries also has gone up dramatically, from $2.68 for ever $100 of payroll in 2000 to $6.30 per $100 last 2003 - the highest rate in the nation.
Most workers' comp systems are more limited than California's, which covers all industries and all workers, including employees of small businesses and up to 900,000 agricultural workers.
California also makes it easier than many states for workers to get benefits, covering injuries and occupational infirmities that other states do not.
The worker's compensation reform legislation couldn't come at a more critical time.
Last year, a pair of national surveys black-eyed California as having near the worst business climate in the entire country.
In a recent survey for the California Business Roundtable and reported on in the Los Angeles Daily News, consultants reported that nearly 30% of the 50 California companies interviewed had explicit policies to move jobs out of state if possible. And half said they planned to deter job growth in California.
Some cited high housing costs, others the widening gap between operating expenses in California and other states with worker's compensation costs registering as a major concern with virtually every survey respondent.
If businesses continue to flee, it could make a notable dent in the state's job growth.
State officials said that California added a measly 5,200 jobs in March, while the nation created 308,000 payroll jobs. It's unclear whether a shift of jobs to other states played a role in California's lagging performance. But there's little doubt that rising business costs are restraining hiring and discouraging new employers from setting up shop, the Roundtable said.
Dr. John Husing, an economist who specializes in the Inland Empire - the region east of Los Angeles that encompasses Riverside and San Bernardino counties - told the Daily News, "California cannot expect any large companies that have a choice to come to this state, regardless of whether we fix workers' comp."
Recruiters from other states - particularly neighboring Arizona and Nevada - are stressing cost differentials in stepped-up campaigns to lure California-based companies away from the Golden State.
In March, a delegation from North Dakota welcomed about 100 guests at the Beverly Hilton in Beverly Hills, where officials spoke about the virtues of their state - including its workers' comp costs.
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