HomeMy WebLinkAboutMINUTES - 04012003 - D7 Contra
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.,. BOARD OF SUPERVISORS o
FROM: John Sweeten, County Administrator County
DATE: April 1, 2003 b,7
SUBJECT: Issuance of 2003 Pension Obligation Bonds
SPECIFIC REQUEST(S)OR RECOMMENDATION($)&BACKGROUND AND JUSTIFICATION
Recommendation:
1. AUTHORIZE the sale and issuance of County of Contra Costa Pension Obligation Bonds in an
amountnot to exceed $340 million to refund the County's existing unfunded actuarial accrued
liability ("UAAL") as of 12131/01 with the Contra Costa County Employees Association (the
"Retirement Association").
Fiscal fmpAcV
As of 12131/01, the County's UAAL was$319.1 million. The Retirement Association is currently
amortizing this unfunded liability at a rate of 8.35% over 20 years. The County's actuarial
consultant, Ira Summer, of Public Pension Professionals, estimates that over the next twenty
years, the cost of amortizing this UAAL will total $665.2 million. Based on current low interest
rates, staff estimates that the County could realize significant interest rate savings by issuing 20-
year taxable Pension Obligation Bonds to refund this UAAL. Assuming an all-in cost of funds of
5.5%, the County would realize 8 million in savings over the life of the bonds. Anticipated first
year savings from this bond issue are forecast at$8.30 million, of which 50%or$3.15 million will
be net county cost savings.
CONTINUED ON ATTACHMENT:__.x__YES SIGNATURE:
RECOMMENDATION OF COUNTY ADMINISTRATOR RECOMMENDATION OF BOARD COMMITTEE
APPROVE OTHER
SIGNATURE(S):
ACTION OF BOARD ON Apra 1_ 1, 2003 APPROVE AS RECOMMENDED X OTHER
VOTE OF SUPERVISORS I HEREBY CERTIFY THAT THIS IS A TRUE
\ UNANIMOUS � AND CORRECT COPY OF AN ACTION TAKEN
{ABSENT s, s% ) AND ENTERED ON THE MINUTES OF THE BOARD
AYES: NOES: OF SUPERVISORS ON THE DATE SHOWN.
ABSENT: ABSTAIN: ---�—
DISTRICT III SEAT VACANT ^----
_ ATTESTED APRIL 1.7 2003 -- --—
JOHN SWEETEN,CLERK OF THE BOARD OF
SUPERVISORS AND COUNTY ADMINISTRATOR
Contact Person: Mary Foran(5-5010)
CC:CAO
Tressurer/Tax Collector `#
Auditor/Controller ,.
f;
County Counsel BY f ,�" DEPUTY
The County will pay the Retirement Association an estimated $20 million in UAAL amortization
payments this year (of which 50%, or $10 million, is net County costs.) By completing this
transaction before June 30, 2003, the County's existing UAAL obligation to the Retirement
Association will be extinguished in full, thereby eliminating the need for the FY 2002-03 UAAL
amortization payment; it is anticipated that a significant portion of the FY 2002-03 payment will
therefore be applied as a credit towards next fiscal year's pension contributions. The final"truing
up"of all FY 2002-03 pension costs will be completed in early July 2003, at which time the actual
amount of the credit will be determined.
Background:
Presentations were made to the Board of Supervisors at two budget workshops this past
February regarding the sale and issuance of pension obligation bonds as part of the larger
strategy to close the County's anticipated budget shortfall of$50 million for FY 2003-04.
At the time of the February 25, 2003 Board meeting, it was contemplated that the County would
refinance the UAAL to the Retirement Board as of December 31, 2002, which the County's
actuarial consultant, Ira Summer, of Public Pension Professionals, estimated to total $354
million based on the existing actuarial assumptions regarding the assumed interest rate of
8.35%. The County Retirement Association has subsequently informed County staff that the
official actuarial report for 2002 will not be available until late May 2003 at the earliest. Indeed,
many of the actuarial assumptions that will be used to determine the official UAAL number for
2002 will be deliberated and approved by the Retirement Association at its meeting on April 2,
2003.
Given the need to move quickly on the POB bond issue in order to capture the savings afforded
by the current low interest rate environment and the uncertainty as to the actual completion
date of the official actuarial report for 2002, staff recommends that the County proceed with the
UAAL refunding based on the 12131/01 actuarial report. Given that the County's UAAL for 2001
was $319 million, it is likely that another UAAL will emerge over the next few years as actuarial
assumptions are revisedand the earnings shortfalls/market losses of the last three years begin
to be brought in through the five-year smoothing process. Staff will continue to monitor interest
rates in order to make recommendations to the Board as to the feasibility of refinancing the new
UAAL that will likely emerge in order to reduce annual county pension costs.
BOARD OF SUPERVISORS OF THE
COUNTY OF CONTRA COSTA
RESOLUTION NO. 2003/2_
RESOLUTION AUTHORIZING THE ISSUANCE OF AN
ADDITIONAL COUNTY OF CONTRA COSTA PENSION
OBLIGATION DEBENTURE, THE ISSUANCE AND SALE OF
ONE OR MORE ADDITIONAL SERIES OF COUNTY OF
CONTRA COSTA PENSION OBLIGATION BONDS,
AUTHORIZING ONE OR MORE SWAP AGREEMENTS,
SUPPLEMENTAL TRUST AGREEMENTS, AGREEMENTS
RELATING TO AUCTION RATE SECURITIES, CONTRACTS
OF PURCHASE, A PRELIMINARY OFFICIAL STATEMENT
AND AN OFFICIAL STATEMENT, CONTINUING
DISCLOSURE AGREEMENTS AND OTHER MATTERS
RELATING THERETO
WBEREAS, the County of Contra Costa(the"County") adopted a retirement plan
under the County Employees Retirement Law of 1937, being Chapter 3 of the Government Code
of the State of California, Sections 31450 through 31898, inclusive, as amended(the"Retirement
Lave"); and
WHEREAS,the Retirement Law obligates the County to (1)make annual
contributions to the Contra Costa County Employees Retirement Association(the"Association")
to fund pension benefits for its employees, (2)amortize the unfunded actuarial accrued liability
("UAAL")with respect to such pension benefits over a period not exceeding 30 years, and
(3) appropriate funds for the purposes described in(1)and(2);
WHEREAS, on November 9, 1993, the Board of Supervisors of the County(the
"Board") adopted Resolution No. 93/668 ("Resolution No. 93/668")authorizing the issuance of
one or more County Pension Obligation Debentures and the issuance and We of one or more
series of County Pension Obligation Bands;
WHEREAS,this Resolution supplements Resolution No. 93/668;
WHEREAS, the County, in 1994, evidenced its obligations to the Association to
pay the then-current URAL of the County by executing a Debenture(the"1994 Debenture") in
favor of the Association;
WHEREAS, the County issued its Taxable Pension Obligation Bonds, 1994
Series A(the"1994 Series A Bonds")in an aggregate principal amount of$337,365,000
pursuant to a Trust Agreement dated as of February 1, 1994(the"Original Trust Agreement"),
by and between the County and First Interstate Bank of California, as trustee(the"Original
Trustee"), a portion of the proceeds of which were used to refund the 1994 Debenture;
WHEREAS, on March 20, 2001, the County issued its Taxable Pension
Obligation Bonds, Refunding Series 2001 (the"2401 Bonds")in an aggregate principal amount
DOCSSFI:671642.2
of$147,005,000, pursuant to the Original Trust Agreement, as supplemented by the First
Supplemental Trust Agreement, dated as of March 1, 2001,between the County and BNY
"Western Trust Company, as successor trustee(the"Trustee")to refund and defease a portion of
the 1394 Series A Bonds;
WHEREAS,recently the Board instituted a number of enhanced pension benefits
and, partially as a consequence of which,the County had, as of December 31, 2001, a UAAC..in
the amount of not less than$319,094,719, after giving effect to any existing credit, based on the
estimate of William M. Mercer, Incorporated(the"Actuary"), made as of November 26, 2402
pursuant to the Retirement Law; and
WHEREAS,the County desires to evidence its obligation to the Association to
pay the UAAL by executing an additional debenture(the"20103 Debenture");and
WHEREAS, the County desires to issue Additional Bonds (the"2003 Bonds')
pursuant to a,Second Supplemental Trust Agreement in an aggregate principal amount not to
exceed$340 million in order to refund the principal amount of the 2403 Debenture and pay costs
of issuance of the 2003 Bonds including, without.limitation,underwriters' discount,thereby
providing funds to the Association for investment and refunding a portion of the County's
pension obligations; and
WHEREAS, there have been presented to this meeting proposed forms of the
following documents.
1. the 2003 Debenture;
2. a Second Supplemental Trust Agreement(the"Second Supplemental Trust
Agreement")to be entered into between the County and the Trustee,
relating to the 2003 Bonds;
3, a Contract of Purchase;
4. an ISDA Master Agreement and Schedule;
5, an Auction Agent Agreement;
C. a Broker-Dealer Agreement;
7. a Market Agent Agreement;
8. a Preliminary Official Statement for the 2003 Bonds; and
9. a Continuing Disclosure Agreement.
NOW, THEREFORE, IT IS RESOLVED, DETERMINED AND ORDERED by
the Board of Supervisors of the County of Contra Costa as follows;
DccssrI:671642.2 2
Section 1. The Board hereby finds and declares that the execution of the 2003
Debenture, the issuance of the 2003 Bonds in an aggregate principal amount not to exceed $340
million to refund the 2003 Debenture and the other actions contemplated by this Resolution are
in the best interests of the County.
Section 2. The Board hereby authorizes and approves the execution and
delivery of the 2003 Debenture in an initial principal amount not exceeding the estimated
unfunded actuarial accrued liability as determined by an actuary of the Association as of the date
of issuance of the 2003 Debenture, and authorizes and directs the Treasurer-Tax Collector of the
County(the"Treasurer-Tax Collector")to execute and deliver the 2003 Debenture to the
Association, substantially in the form presented to this meeting,with such changes therein,
deletions therefrom and additions thereto as the Treasurer-Tax Collector in consultation with
County Counsel shall approve, such approval to be conclusively evidenced by the execution and
delivery of the 2003 Debenture to the Association, and the Clerk of the Board is authorized and
directed to affix and attest the seal of the County, provided, however, that the stated interest rate
on the 2003 Debenture shall not exceed eight and thirty-five hundredths percent (8.35%)per
annum,the 2003 Debenture shall be prepayable at any time without premium, and the 2003
Debenture shall mature not later than 20 years, or the UAAL amortization period in effect at the
Association, from its date of issuance. The 2003 Debenture shall constitute an obligation
imposed by law, pursuant to the Constitution of the State of California and the Retirement Law
and an'obligation of the County not limited as to payment from any special source of funds. The
2003 Debenture shall not, however, constitute an obligation of the County for which the County
is obligated or permitted to levy or pledge any form of taxation or for which the County has
levied or pledged or will levy or pledge any form of taxation.
Section 3. The Board hereby authorizes and approves the issuance of the
2003 Bonds in an aggregate principal amount not to exceed$340 million and hereby authorizes
and directs the Chair of the Board and the Treasurer-Tax Collector to execute the 2003 Bonds,
and the Clerk of the Board to affix and attest the seal of the County and to cause the 2003 Bonds
to be authenticated and delivered in accordance with the Second Supplemental Trust Agreement.
The 2O03 Bonds shall be in substantially the form set forth in the exhibit to the Second
Supplemental Trust Agreement,with such changes therein, deletions therefrom and additions
thereto as the Chair of the Board, the County Administrator of the County or the Treasurer-Tax
Collector or a designee of any of such officers(each an"Authorized Officer")in consultation
with County Counsel shall approve, such approval to be conclusively evidenced by the execution
(by manual or facsimile signature)and delivery of the 2003 Bonds;the 2003 Bonds may be
issued in a single series or in two or more series or subseries, and may be issued as Fred Rate
Bonds or Auction Rate Bonds as specified in the Second Supplemental Trust Agreement when
executed;provided, however,that the aggregate initial principal amount of the 2003 Bonds shall
not exceed the sum of the amount necessary to refund the unpaid principal amount of the 2003
Debenture, plus the underwriters' discount on the 2003 Bonds and the costs of issuance of the
2003 Bands(including any bond insurance premiums and ongoing administrative costs related to
the 2003 Bonds); the interest rate on the 2043 Bonds which are Fixed Rate Bands(and in the
case of Auction Rate Bonds, initially or after giving effect to any Swap Agreement(defined
below) or as estimated over the term of the Bonds) shall not exceed eight percent (8%) per
annum; and the 2003 Bonds shall mature not later than 20 years or the URAL amortization
period in effect at the Association from the date of issuance of the 20103 Debenture.
DOCSSFi:671642.2 3
Notwithstanding the provisions of the draft of the Second Supplemental Trust Agreement
presented to this meeting, the Authorized Officer is hereby authorized to determine the
provisions for redemption of the 2003 Bonds, if any. The Authorized Officer is hereby
authorized to determine whether the 2003 Bonds will be issued as Fixed Rate Bonds or Auction
Rate Bands, or any combination thereof:, and the interest payment dates for any 2003 Bonds,
subject to any limits unposed by the Original Trust Agreement. Each such determination by the
Authorized Officer shall be conclusively evidenced by the issuance of the 2003 Bonds. The
2003 Bonds shall constitute an obligation imposed by law, pursuant to the Constitution of the
State of California and the Retirement Law and an obligation of the County not limited as to
payment from any special source of funds. The 2003 Bands shall not,however, constitute an
obligation of the County for which the County is obligated or permitted to levy or pledge any
form of taxation or for which the County has levied or pledged or will levy or pledge any form of
taxation.
Section 4. The County shall enter into the Second Supplemental Trust
Agreement with BNY Western Trust Company as trustee. The Authorized Officer is hereby
authorized and directed to execute and deliver the Second Supplemental Trust Agreement on
behalf of the County, substantially in the form presented to this meeting,with such changes
therein, deletions therefrom and additions thereto, as the Authorized Officer in consultation with
County Counsel shall approve(but consistent with the authority granted to the Authorized
Officerin Section 3 hereof), such approval to be conclusively evidenced by the execution and
delivery of the Second Supplemental Trust Agreement, and the Clerk of the Board is authorized
and directed to affix and attest the seal of the County thereto.
Section 5. The Authorized Officer is hereby authorized to execute and deliver
on behalf of the County one or more interest rate swap agreements and/or hedging agreements
and/or any other form of derivative agreement or arrangement(each a"Swap Agreement")with
an institutional party provided, however,that(i)the institutional party shall have an unsecured,
long-term credit rating from either of(a)Moody's Investors Services, Inc., a Delaware
Corporation and its successors(and if such corporation shall for any reason no longer perform
the functions of a securities rating agency, any other nationally recognized security rating agency
designated by the County) of"A"or better, or(b) Standard&Poor's Corporation, a New York
corporation and its successors(and if such corporation shall no longer perform the function of a
securities rating agency any other nationally recognized securities rating agency designated by
the County) of"A" or better, (ii)the term of the swap agreement, derivative agreement or
hedging agreement shall not exceed the final maturity of the Bonds, (iii)the County's obligations
shall be,contingent upon certain performance by the counterparty to the agreement or
arrangement and(iv)that the County will have the right to terminate the agreement or
arrangement upon the occurrence of certain circumstances. The Board hereby finds and
determines pursuant to the provisions of Government Code Section 5922 that the Swap
Agreements described in this Section 5 will reduce the amount of interest rate risk or result in a
lower cost of borrowing to the County.
In furtherance of the foregoing, the Authorized Officer is hereby authorized to
execute and deliver one or more ISDA Master Agreements, Schedules and related confirmations
in substantially the form presented to this meeting, such Swap Agreements to be in an aggregate
notional amount not exceeding the aggregate amount of the 2043 Bonds which are issued
DOCSsF1.671642.2 4
pursuant to this Resolution. Each Swap Agreement shall be in such form as may be approved by
the Authorized Officer in consultation with County Counsel and Bond Counsel, said execution to
be conclusive evidence of such approval; provided, however, that(i)the payments made by the
counterparty to each Swap Agreement must be made at the same frequency and on the same
dates as the interest payments due on that principal amount of 2003 Bonds equal to the notional
amount of the Swap Agreement; (ii) each Swap Agreement shall provide for payment by the
Countyat each payment date under each Swap Agreement of an amount which is net of amounts
accrued or payable with respect to the counterparty's payment obligation under the Swap
Agreement, and(iii)each Swap Agreement shall be such that (A)if, by entering into such Swap
Agreement the County will be agreeing to pay a variable interest rate and shall be receiving a
fixed rate, then the initial:floating rate to be paid by the County expressed as an annual
percentage rate shall be less than the fixed rate to be received by the County, or(B)if, by
entering into such Swap Agreement the County will be agreeing to pay a fixed interest rate and
shall be receiving a variable interest rate, then the Authorized Officer shall have determined that
the Swap Agreement will reduce the amount of interest rate risk or result in a lower cost of
borrowing and is in the best financial interest of the County.
In connection with the 2003 Bonds or with any Swap Agreement, the Authorized
Officer also is hereby authorized to execute and deliver one or more interest rate cap agreements
(each a"Cap Agreement"), such Cap Agreements to be in an aggregate notional amount not
exceeding the aggregate amount of the Bonds which are issued pursuant to this Resolution. Each
Cap Agreement shall be in such form as may be approved by the Authorized Officer in
consultation with County Counsel and Bond Counsel, said execution to be conclusive evidence
of such approval. Pursuant to each Cap Agreement, the Authorized Officer may agree to pay the
counterparty to such Cap Agreement a fee(the"Cap Fee")as provided in the Cap Agreement in
order to receive from such counterparty the amount, if any,by which a variable interest rate
exceeds a fixed interest rate, each as specified in such Cap Agreement, for each period specified
in such Cap Agreement;provided, however, that the Authorized Officer shall have determined
that payment of the Cap Fee is appropriate for the reduction in the County's exposure to
variations in interest rates during the term of the 2003 Bonds or any Swap Agreement.
The Authorized Officer is also hereby authorized to terminate or replace any
Swap Agreement or execute and deliver any Swap Agreement or Cap Agreement that serves to
reverse any outstanding Swap Agreement or Cap Agreement, respectively, if in the judgment of
the Authorized Officer, in consultation with County Counsel, such termination, replacement or
reversal, together with any other action taken by the County, would reduce the amount of interest
rate risk or result in a lower cost of borrowing to the County. Such reversal will not be
considered for purposes of calculating the aggregate amount of such Swap Agreement or Cap
Agreement authorized by this Resolution pursuant to the preceding three paragraphs.
Section 6. There has been prepared and presented to the Board a proposed
form of auction agent agreement (hereinafter referred to as the"Auction Agreement")relating to
the performance of certain duties with respect to any Series of 2003 Bonds while such Series of
2003 Bonds bears interest at an auction rate, such Auction Agreement to be entered into with one
or more auction agents(each an"Auction Agent" and hereinafter collectively referred to as the
"Auction Agents"), which Auction Agreement may be executed and delivered in the event that
one or more Series of 2003 Bonds is issued in an auction rate Triode. The Authorized Officer is
SSF'I:671642.2 5
hereby authorized to execute and deliver one or more Auction Agreements on behalf of the
County, in substantially such Form, with such changes therein, deletions therefrom and additions
thereto as the Authorized Officer, in consultation with County Counsel shall approve, which
approval shall be conclusively evidenced by the execution and delivery of the Auction
Agreement. The Authorized Officer is further authorized to remove and replace Auction Agents
in the future as such officer deems necessary or convenient.
Section 7. There has been prepared and presented to the.Board a proposed
form of broker-dealer agreement(hereinafter referred to as the"Broker-Dealer Agreement")
relating to the performance of certain duties with respect to any Series of 2003 Bonds while such
Series of 2003 Bonds bears interest at an auction rate, such Broker-Dealer Agreement to be
enteredinto with one or more entities that is permitted by law to perform the function of broker-
dealer and is a member of; or a direct participant in, the security depository for the 2003 Bonds
(each a"Broker-Dealer" and hereinafter collectively referred to as the"Broker-Dealers"), which
Broker-Dealer Agreement may be executed and delivered in the event one or more Series of
2003 Bonds is issued in an auction rate mode. The Authorized Officer is hereby authorized to
execute and deliver one or more Broker-Dealer Agreements on behalf of the County, in
substantially such farm, with such changes therein, deletions therefrom and additions thereto as
the Authorized Officer, in consultation with County Counsel shall approve, which approval shall
be conclusively evidenced by the execution and delivery of the Broker-Dealer Agreement. The
Authorized Officer is further authorized to remove, replace and appoint additional Broker-
Dealers with respect to the 2003 Bonds as such officer deems necessary or convenient.
Section 8. There has been prepared and presented to the Board a proposed
form of market agent agreement(hereinafter referred to as the"Market Agent Agreement")
relating to the performance of certain duties with respect to any Series of 2003 Bonds while such
Series of 2003 Bonds bears interest at an auction rate, such Market Agent Agreement to be
entered into with one or more market agents(each an"Market Agent" and hereinafter
collectively referred to as the"Market Agents"), which Market Agent Agreement may be
executed and delivered in the event that one or more Series of 2003 Bonds is issued in an auction
rate mode. The Authorized Officer is hereby authorized to execute and deliver one or more
Market Agent Agreements on behalf of the County,in substantially such form, with such
changes therein, deletions therefrom and additions thereto as the Authorized Officer, in
consultation with County Counsel shall approve,which approval shall be conclusively evidenced
by the execution and delivery of the Market Agent Agreement. The Authorized Officer is further
authorized to remove and replace Market Agents in the future as such officer deems necessary or
Convenient.
Section 9. If the Authorized Officer determines that it will be advantageous to
the County to purchase municipal bond insurance with respect to some or all of the 2003 Bonds
or Swap Agreements, the Authorized Officer is hereby authorized to purchase such insurance at
market rates.
Section 10. In the event this Board fails or neglects to make appropriations for
transfer in respect of its obligation to pay the 2003 Bonds, the Auditor-Controller of the County
is hereby authorized and directed, pursuant to Section 31584 of the Retirement Law, to transfer
nc>cssFI.6716421 6
from any money available in any fund in the County treasury amounts necessary to make such
payments with such transfer having the same force and effect as an appropriation by this Board,
Section 11. The Authorized Officer of the County is hereby authorized and
directed to enter into one or more Purchase Contracts with respect to the 2003 Bands
substantially in the form presented to this meeting(the"Purchase Contract")with Lehman
Brothers, Morgan Stanley& Co. Incorporated, Bear, Stearns& Co. Inc., and Merrill Lynch&
Co. (the"Underwriters"), with such changes therein as the Authorized Officer, in consultation
with County Counsel shall approve as evidenced by the execution thereof, provided, however,
that the underwriting fee payable by the County pursuant to the Purchase Contract shall not
exceed the sum of one percent(1.00%) of the principal amount of the 2003 Bonds and the
principal amount of the 2003 Bonds and the interest rates thereon shall be limited as specified in
Section 3 hereof
Section 12. The Preliminary Official Statement of the County, in the farm
presented to this meeting, is hereby approved and the same may be used and is hereby authorized
to be used and distributed in the market by the Underwriters incident to the marketing of the
2003 Bonds. The Authorized Officer is hereby authorized(a)to make such changes in such
form of the Preliminary Official Statement as either of them, in consultation with County
Counsel and the Underwriters, shall determine to be appropriate, and(b)on behalf of the County,
to deem such Preliminary Official Statement "final" pursuant to Rule 15c2-12 under the
Securities Exchange Act of 1934 (the"Rule"). The appropriate officers of the County are, and
each of them hereby is, authorized and directed to prepare a final Official Statement,with such
additional information as may be permitted to be excluded from the Preliminary Official
Statement pursuant to the Rule. The final Official Statement shall be executed and delivered in
the name and on behalf of the County by the Authorized Officer.
Section 13. The Continuing Disclosure Agreement of the County, in
substantially the form presented to this meeting, is hereby approved and the same may be used
and is hereby authorized to be used and distributed in the market by the Underwriters incident to
the marketing of the 2003 Bonds. The Authorized Officer is hereby authorized to execute and
deliver the Continuing Disclosure Agreement on behalf of the County, substantially in the form
presented to this meeting, with such changes therein, deletions therefrom and additions thereto as
the Authorized Officer in consultation with County Counsel shall approve, such approval to be
conclusively evidenced by the execution and delivery of the Continuing Disclosure Agreement.
Section 14. The Board hereby authorizes the Authorized Officer to enter into
one or more investment agreements on behalf of the County providing for the investment of
moneys in the funds and accounts created under the Trust Agreement, as the Authorized Officer
deems appropriate, including the amendment, termination or revision of any existing investment
agreements(collectively, the"Investment Agreement"). The Beard hereby finds and determines
pursuant to Government Code Section 5922, that the Investment Agreement and Escrow
Agreement will reduce the amount and duration of interest rate risk with respect to amounts
invested pursuant to such agreements. The Authorized Officer is hereby authorized and directed
to execute and deliver the Investment Agreement and any other related agreement or agreements
on behalf of the County as may be approved by the Authorized Officer, such approval to be
conclusively evidenced by the execution and delivery of such agreement or agreements. Any
MCSSFI:671642.2 7
termination amounts required to be paid by the County with respect to the Investment Agreement
shall be paid from proceeds of the 2003 Bonds or amounts invested pursuant to the Investment
Agreement. Any termination amounts or up front payments received with respect to the
Investment Agreement will be applied as determined by the Authorized Officer,
Section 15. The supervisors, officers and employees of the County are hereby
authorized and directed,jointly and severally,to do any and all things which they may deem
necessary or advisable in order to consummate the transactions herein authorized and otherwise
to carry out, give effect to and comply with the terms and intent of this Resolution. The Chair of
the Board of Supervisors, the Clerk of the Board, the County Administrator and the Director,
CapitalFacilities and Debt Management, in her official capacity and as designee of the County
Administrator(the"Director"), and the other officers and employees of the County are hereby
authorized and directed to execute and deliver any and all documents, certificates and
representations, including, but not limited to, signature certificates, no-litigation certificates and
certificates concerning the official statement describing the Bonds, necessary or desirable to
accomplish the transactions set forth above. If either the Chair of the Board or the Clerk of the
Board and County Administrator is unavailable at the time the documents authorized herein are
to be executed and attested, such documents may be executed by the Vice-Chair of the Board, a
Deputy Clerk or the Director, respectively,with the same effect as if executed by the Chair of the
Board or the Clerk of the Board and the County Administrator.
Section 16. All actions heretofore taken by the supervisors, officers and agents
of the County with respect to the execution and delivery of the Bonds and the other transactions
authorized and contemplated herein are hereby approved, confirmed and ratified.
DMSSF1.671642.2 8
Section 17. This Resolution shall talo effect immediately upon its adoption.
PASSED AND ADOPTED by the Board of Supervisors of the County of Contra.
Costa this 1st day of APRIL - - , 2003.
Chair ofthe Board of Supervisors
County of Contra Costa, California
[Seal]
ATTEST: John R. Sweeten, Clerk of the
Board of Supervisors and County Administrator
By •' . «.
Deputy Clerk of the Board of
Supervisors of the County of
Contra Costa, State of California
DOCSSFI-6716421 9
[FORM OF DEBENTURE)
No. 2003-_ $
COUNTY OF CONTRA COSTA
STATE OF CA-LIFORNIA
PENSION OBLIGATION DEBENTURE
The County of Contra Costa(the"County"), a political subdivision of the State of
California, acknowledges itself indebted, and for value received hereby promises to pay, to the
Contra,Costa:County Employees Retirement Association(the"Association"),a retirement
association existing under the County Employees Retirement Law of 1937 of the State of
California, or assigns(the"Holder"),the sum of
($ ), together with interest hereon from the date hereof at the rate of
percent(_____!/o)per annum. Principal and interest shall be paid at such address as shall have
been agreed upon by the Holder hereof and the County. Interest on such principal amount shall
be payable from the date of this Debenture or from the most recent interest payment date to
which interest has been paid or duly provided for, commencing on , 2003, and
semiannually thereafter on June l and December I at the rate set forth above, until the principal
hereof is paid or made available for payment and principal shall be payable in accordance with
the following schedule:
(.Maturity Date) Principal Amount
DOCSSFI:671642.2 10
provided, however, that the County shall prepay each fiscal year's obligations within thirty days
of the commencement of such fiscal year,
This Debenture is a duly authorized debenture of the County designated its"2003
Pension Obligation Debenture" (the"Debenture")in the aggregate principal amount of
$ issued under and in full compliance with the Constitution and statutes of the
State of California, particularly the County Employees Retirement Law of 1937, as amended (the
"Act"),,and under and pursuant to Resolution No. 931668 adopted by the Board of Supervisors
(the"Board") of the County on November 9, 1993 and Resolution No. 03-_adopted by the
Board on , 2003 (collectively, the"Resolutions"). This Debenture and payment
hereunder are subject to the terms and conditions of the Resolutions, copies of which are on file
at the office of the Clerk of the Board of the County, and reference to the Resolutions and any
and all supplements thereto and modifications and amendments thereof and to the Act is made
for a complete statement of such terms and conditions.
This Debenture may, at any time and from time to time, be prepaid in whole or in
part without premium and without prier notice.
The obligations of the County hereunder, including the obligation to make all
payments of interest and principal when due, are obligations of the County imposed by law and
are absolute and unconditional, without any right of set-off or counterclaim. This Debenture
does not constitute an obligation of the County for which the County is obligated or permitted to
levy or pledge any form of taxation or for which the County has levied or pledged or will levy or
pledge any form of taxation. Neither the Debenture nor the obligation of the County to make
payments on the Debenture constitute an indebtedness of the County, the State of California, or
any of its political subdivisions within the meaning of any constitutional or statutory debt
limitation or restriction.
Pursuant to Section 31584 of the Act, the Board is obligated to make
appropriations to pay the unfunded actuarial accrued liability which is evidenced by this
Debenture and such Section and the Resolutions require the Auditor-Controller of the County to
transfer from any money available in any fund in the county treasury the sums specified if the
Board fails to make such appropriations.
Notwithstanding any dispute between the County and the Association, or any
assignee of the Association or any assigns of the Association, the County shall make all
payments required hereunder when due, unless made earlier pursuant to optional prepayment,
and shall not withhold any such payments pending the final resolution of such dispute or for any
other reason whatsoever. The County hereby waives presentment, protest, notice, demand or any
action on delinquency.
It is hereby certified and recited that all conditions, acts and things required by
law and the Resolutions to exist, to have happened and to have been performed do exist, have
happened and have been performed in due time, form and manner as required by law.
DocssFi.6716421 11
INWr NESS WHEREOF, THE COUNTY OF CONTRA COSTA,
CALIFORNIA has caused this Debenture to be signed in its name and on its behalf by the
manualor facsimile signature of the Treasurer-Tax Collector of the County and its seal(or a
facsimile thereof)to be hereunto affixed, imprinted, engraved or otherwise reproduced, as of the
1st. day of APRIL , 2003.
COUNTY OF CONTRA COSTA
By
Treasurer-Tax Collector
[SEAL]
Attest:
Clerk of the Board of Supervisors
DOMSFI:671542.2 12
Report on
CONTRA. COSTA COUNTY'S
WORKERS' COMPENSATION
PROGRAM
PD BY. RISS MANAGEMENT DNISION
OFFICE OF THE CouNTY ADMINISTRATOR
t � s
s
f Y
MARCH 27, 2003
TABLE OF CONTENTS
ISUMMARY....................................................................................................................................I
IIANALYSIS......................................................................................................................................2
A. REQUIREMENTS OF WORKERS' COMPENSATION..............................................................................2
B. THE COUNTY'S PROGRAM..............................................................................................................2
C. THE COUNTY'S PROGRAM COMPARED TO OTHER COUNTIES............................................................3
D. COSTS OF THE PROGRAM................................................................................................................4
E. AB 749................................................................................... .......
III RECOMMENDATIONS................................................................................................................8
IVCONCLUSION...............................................................................................................................9
GLOSSARY......................................................................................................................................... 10
APPENDIX A-COUNTY COMPARISONS..................................................................................... 11
APPENDIX B-CONTRA COSTA COUNTY PROGRAM COST DRIVER ANALYSIS............... 12
APPENDIX C-SALARY CONTINUATION POLICY ANALYSIS................................................. 13
APPENDIX D-OCCUPATIONAL MEDICAL SERVICES.............................................................14
APPENDIX E-ERGONOMIC INJURY PREVENTION PROGRAM............................................ 15
APPENDIX F-AVERAGE OCCUPATIONAL DISABILITY DURATION....................................16
I SUMMARY
Workers'compensation claim costs in California have been rising steadily since 1997.In
FY99O0 Contra Costa County paid$13.1 million dollars in workers' compensation
benefits.By FY00-01 workers' compensation benefit payments reached$18.2 million, an
increase of almost 39%.These increases have been dramatic and it is projected they will
continue.
Fiscal Year RFC Payments % increase Salary Continuation Total
Only from prior Payments
year
FY99-00 $13.1 million $1.3 Million $14.1 Million
FY00 01 $14.8 million 13% $1.1 Million $15.9 Million
FY01-02 $18.2 million 23% $1.3 Million $19.5 Million
With the passage of AB 749,the new workers' compensation law effective January 1,
2003,workers' compensation"disability"benefits increase substantially. The County
can anticipate that the costs will continue to grow and may grow beyond the County's
ability to pay without impacting other programs.
The purpose of this report is to clarify Contra Costa County's responsibilities under
California's workers' compensation laws and to identify ways, if not to decrease our
costs,to slow the rate of the increase.
Recommendations include:
• Employing an Occupational Medical Program, either within the County's Health
Services department,or external to the County with a private provider,
• Assume the responsibility of overseeing the first 30 days of medical treatment,
• Implement a proactive injury prevention and ergonomic program,
• Modify the County's salary continuation program,
• Modify the County's(up to)3-hour allowance for time off to attend medical
appointments, and implement alternatives that would be beneficial to both the
County and the employee,
1
II ANALYSIS
A. Requirements of Workers' Compensation.
Workers' compensation is a no fault benefit delivery system. It was enacted for the
purpose of minimizing the economic loss suffered by injured workers(or dependents)
due to work-related injuries, illnesses or even death.
It is mandated that every employer,public or private, doing business in the state of
California provide workers'compensation benefits through insurance or by self-
insurance. Employers choosing to fund their own losses may,by virtue of the State's
authority, be permitted to"self-insure." Strict scrutiny is applied when granting
permission to self-insure since all losses to injured employees must be paid The County
is self-insured and self-administered.
The state of California mandates that an employee who sustains a job-related injury or
illness is entitled to, among other benefits:
I) "reasonable" medical treatment,to cure or relieve from the effects of the injury."
(Labor Code Sec. 4600).
Z) tax-free disability benefits(known as temporary disability)on a temporary basis
during periods where the employee is unable to work due to the injury. These
benefits are paid based on an employee's earnings at the time of the injury. It is
generally calculated to be two-thirds of an employee's average weekly earnings.
There are statutory minimum and maximum weekly payment rates.
3) permanent disability compensation if the injury/condition results in decreasing the
employee's abililty to compete in the open labor market,
4) vocational rehabilitation services if the employee is unable to return to the same job
due to the effects of the injury or condition,
5) death benefits in the event the cause of death resulted from the employment.
B. The County's program.
In addition to the state-mandated benefits,the County enhances its workers'
compensation benefit package, in accordance with various Memoranda of Understanding
and Management Regulations. Excluding safety members(who receive full salary in lieu
of temporary disability benefits under the Labor Code),the County program provides:
1) in lieu of temporary disability benefits, a"salary continuation"program whereby
permanent employees receive 86%of their regular monthly salary,tax-free,during
any period of compensable temporary disability up to 365 (aggregate)days for each
injury. No charge is made against sick leave or vacation accruals for these payments,
' Labor Code Sec. 4950
2
2) up to three hours per day without loss of pay or benefits if an employee has returned
to work and is required to leave work to attend medical appointments. 'There is no
charge made against sick leave or vacation accruals,
3) the County has not exercised its right to direct the employee's medical care for the
first 30 days following the injury.
C. The County's Program Compared to other Counties.
Detailed comparison of workers' compensation loss data with other counties is contained
in Appendix A. Ivey policy differences between the counties are listed below.
Alameda County—provides 90%salary continuation for up to 365 aggregate days.
Alameda County directs employees to selected medical clinics during the first 30 days
following the injury, unless the employee pre-designates a physician.
San Mateo County--provides 100%salary continuation for 90 days;thereafter the state-
mandated benefits are paid. San Mateo County directs the employee's medical care for
the first 30 days following the injury, unless the employee pre-designates a physician.
San.Bernardino County—provides 100%salary continuation for 40 hours. After this
period is exhausted the employee may use accrued sick leave or vacation accruals to
snake up the difference between the state mandated weekly benefit and regular salary.
San Bernardino County directs an employee to selected medical clinics during the first 30
days following the injury,unless the employee pre-designates a physician.
Sacramento County—does not provide a salary continuation program. An employee
may use sick leave or vacation accruals to make up the difference between the state
mandated weekly benefit and regular salary. Otherwise, only the state mandated benefits
are paid. Sacramento County directs employees to selected medical clinics during the
first 30 days following the injury,unless the employee predesignates a physician.
Santa Clara County_..provides no salary continuation program. It only pays the state
mandated weekly benefit. An employee is allowed to use available sick leave and
vacation accruals to make up the difference between the state mandated weekly benefit
and regular salary. Santa Clara County directs the medical care for the first 30 days
following the injury,unless the employee pre-designates a physician.
City and County a,f San.Francisco—provides no salary continuation program,only
paying the state mandated benefits. The City and County of San Francisco directs the
medical care for its employees to selected clinics or SF General for the first 30 days
following the injury,unless the employee pre-designates a physician.
3
D. Costs of the Program.
What drives the costs of the County's Workers' Compensation Program?
Two important factors in assessing the cost of a workers'compensation program are
claim "frequency"and claim "severity"
Claim frequency is essentially the number of claims reported over a given period of time.
Claim severity is essentially the amount of money that is ultimately paid on a claim.
Several factors can negatively impact both claim frequency and claim severity. For
example,historically,frequency will increase when economic conditions throughout the
state become unstable or when unemployment increases.
The County's frequency history
The County's claim frequency(number of workers' compensation claims reported
annually)has been relatively stable for the past three fiscal years(from FY99-00 to
FY01-02). The number of claims reported for each fiscal year averaged approximately
1,346.
For the first six months of FY02-03 there has been an increase in frequency of
approximately 12%,compared to the two prior fiscal years.During the first 6 month of
FY02-03,650 claims have been reported compared to 596 reported in the first 6 months
of FY01-02 and 625 claims reported in the first 6 months of FY00-01.
T ke severity factor
One key factor that has had a major impact on statewide claim severity is the rising cost
of medical care.This rise is partially due to inflation.For example,the workers'
compensation industry has documented a substantial increase in the cost of
pharmaceuticals.-"Pharmaceutical fees have more than doubled since 1995,making them
one of the fastest growing medical cost drivers." Another example is medical over-
utilization(frequency of medical treatment)which has experienced significant increases
since the late 1990's.3 Mote that protracted treatment typically results in longer periods of
time off work and has been tied to increased permanent disability compensation
payments or settlements.
The second key factor affecting severity is the rising cost of disability. Disability duration
and benefit rate increases for both temporary and permanent impairment benefits have
contributed to the rise. Prior to January 1, 2003,the maximum weekly temporary
disability rate was $490 based on earnings of$735 and above per week. Since January 1,
2003,the maximum has been increased to$602 per week. With the enactment of AB749,
weekly disability benefits have increased more than 22%from previous levels. Appendix
Z California Workers'Compensation Institute No.02-17- 11/13/02
3 California Workers'Compensation Institute No.01-23 12124/01,WCRI Media Release 3/25/02
4 Workers'Compensation Research Institute Media Release 12/30/02
4
B provides a detailed analysis of the County's cost drivers. (Also see discussion below on
AB 749)
The County has experienced sharp increases in claim severity
The County has experienced sharp increases in the medical payments made on claims
over the past three fiscal years(FY99-00, FYOO-01,FY01-02)with FYOI-02 seeing the
greatest increase. The County's workers' compensation payment history has revealed
that three medical payment categories exceed$1,000,000 per year:
+ Chiropractic treatment,
• medical doctors, and
• hospital fees.
Chiropractic care has experienced the most significant growth. Physicians and
chiropractors can directly influence claims costs(severity)because their opinions
regarding medical care and duration of disability are given great weight even when there
is evidence of a lack of objectivity. Treating physicians are given the presumption of
correctness by the Labor Cade.The employer is then left with disputing this presumption
while at the same time saddled with the responsibility for providing"reasonable medical
treatment...".Reasonable treatment is generally defined by case law. In recent years
there has been a liberal interpretation of the definition.
The County has also experienced growth in disability benefits (temporary and
permanent),that significantly affects claim severity. In FYOO-01 the County paid$3.2
million dollars in temporary disability alone. This increased to$3.7 million in I^Y01-02.
Temporary disability payments are projected to reach$4.7 million for FY02-03,an
increase of 47%from FYOO-OI figures.
In total, the County paid$13.1 million in total workers' compensation benefits in FY
1999-2000, $14.8 million in FY00-01 and$18.2 million in FY 2001-2002. This does not
include the cost of salary continuation payments estimated to be$1.2 million. See
Appendix C.
Repetitive Motion Injuries--"RM'I's"(carpal tunnel,tendonitis, etc.)are the fastest
growing type of injuries and typically affect claim frequency and claim severity. The
increase in injuries reported for these types of claims have largely resulted from the
automation of office systems.
RMI injuries are among the most expensive injuriesg. Collectively these claims can cost
in the hundreds of thousands of dollars.This is largely due to the expansiveness of the
treatment plans,often misdiagnosed conditions, lengthy periods of temporary disability,
the necessity of vocational retraining and extensive levels of permanent disability.
To this end,an effective injury prevention program employing ergonomic solutions can
help to reduce the incidence of these injuries and reduce County workers' compensation
claim costs. (See the Recommendations section).
s
BLS Website--Bureau of Labor Statistics,Survey of Occupational Injuries and Illnesses-Year 2000
5
The County's salary contfnuat%n pay program.
Of the counties surveyed, Centra Costa County's salary continuation program is the most
generous,paying 86%of the employee's regular monthly salary, tax-free. It provides the
highest percentage of continuing pay for up 365 (aggregate)days per each injury.
The County's salary continuation program is noteworthy for assisting injured employees
in maintaining financial security while recovering from a job related injury or illness.
The County has generously supported its employees in this fashion,since most injured
employees are not impacted by a loss of income during their temporary disability period.
Please refer to Appendix C for an analysis of the County's salary continuation program.
The program, however, is very costly. With continued pressures on the workers'
compensation system and budgets in general, it is not financially feasible to continue this
program at this level.
The 3-hour time off provision.
The County's allowance for absence from work for up to three hours per day to attend
medical appointments without lass of pay or benefits is a generous auxiliary benefit. It
has a significant impact on the County(the department)to the extent that the absence
results in a loss of productivity. Since the allowance is for"up to 3 hours per day"and is
unlimited, it is possible for an employee to be absent from work for as much as 15 hours
per week for an unlimited period of time.
Additional concerns pertain to how, or by whom,the work will be completed. This can
result in overtime costs and morale issues for coworkers who must fill in for the absent
employee. For exarnple,when an employee is absent to attend a medical appointment,
coverage for the work must be arranged.Coworkers may be required to work overtime to
complete the work. Overtime pay or compensatory time off becomes an additional direct
cost to the department.
Clearly the severity of the loss the department bears is greatly impacted by the number of
employees who need time off to attend medical appointments and the frequency of care.
Aside from the loss caused by the absence,the department pays the employee's wages for
the hours missed since the employee is not using sick leave or vacation accruals to cover
the absence. This is a costly benefit to maintain in its present form.
E. AB 749
The Governor signed AB 749 in February 2002 with an effective date of January 1,2003.
The bill increased the statutory weekly disability benefits.There are new minimum and
maximum temporary disability benefit rates. For injuries on or after January 1, 2003 the
maximum weekly benefit will be$602, a 22+%increase. The legislation established
increases for every year until 2006,at which time the rates will be indexed according to
state wage data.
6
Other benefit increases were also included in AD 749 pertaining to the permanent
disability benefits. The increases are exponential in nature and at this point are too
difficult to quantify until the payments are actually made. It is clear,however,that the
payment rates are not as"fixed"as they have been in years past.
For example, an injury in 2002 with a permanent disability rating of 100/6 would be paid
in weekly increments for 30.25 weeks at$140 per week(the maximum at this
percentage)for a total payout of$4,235. The same rating for an injury occurring in 2003
would yield a total payout of$5,596.50. The table below compares the cost of the same
permanent disability rating for different injury years.
Permanent Disability
Year of In' Isatin g Total PMment
2002 10% $4,235.00
2003 10% $5,596.00
2004 100/0 $8,050.00
2006 10% $9,257.50
Further,the statutory weekly rates the employee is entitled to increases based on the level
of the permanent disability. To illustrate, an injury in 2002 that produces a 20%
permanent disability rating would be paid weekly for 70.50 weeks at$160 per week(the
maximum at this percentage)for a total payout of$11,280. The same rating in 2003
would be paid at$185 per week for a total payout of$13,042.50.
AD 749 also increased death benefits from$125,000 up to$320,000(in 2006), based on
the qualifying number of dependents. A new provision includes payments payable to a
physically or mentally incapacitated minor for the life of the minor. The current law
terminates death benefits when the dependent reaches the age of majority.
Moreover,due to significant questions in the interpretation of the new law,litigation will
be necessary to clarify those issues. Litigation costs will need to be considered when
evaluating costs to the County.
The County's claim severity has mirrored increases experienced by employers on a
statewide basis. Those increases were largely due to escalating medical and disability
costs. With the advent of AD 749 the County can anticipate continued cost increases that
will exert significant upward pressure on the County's workers' compensation program6.
Cost increases that result from AB 749 will significantly impact departments by
increasing annual charges to cover the increased costs.
Do increased costs impact the County's Workers'Compensation Trust Fund?
YES,
Each year an actuarial analysis is done of the workers' compensation program. The
County contracts with an actuarial firm, Millman USA. Among other factors,the actuary
analyzes the County's frequency history, severity of claims paid, and reserves set aside to
6 Workers'Compensation Research Institute Excerpt--California Workers'Comp Advisor—1/29/03
7
pay those claims. Based on available information at the time of the review,they make a
projection of what the ultimate costs will be to pay the County's claims.
Projections will typically change on a yearly basis as more information is obtained(i.e. as
costs are paid out on claims and adverse developments realized). Recommendations
regarding contribution to the funds are based on this information.
Clearly, if the funding levels are insufficient to pay future liabilities,the workers'
compensation program can be seriously compromised.
TIT RECOMMENDATIONS
The issues identified in this report require a comprehensive solution.The escalation of
workers' compensation casts is a complex problem that requires a coordinated injury
prevention effort combined with implementation of all available loss mitigation
strategies. The recommendations provided below were designed to maximize cost
reductions and are intended to provide the County with a comprehensive solution that
addresses all key cost factors.Implementation details and estimated net cost to the
County are identified for each recommendation in the applicable appendix section.
Recommendations are to:
I. Direct the County Administrator to present during budget deliberations a plan and
budget for a comprehensive, County-wide, injury prevention and ergonomic program
to reduce the frequency of job related injuries. (See Appendix E).
2. Direct the County Administrator to develop a plan,effective 7/1/03,to assume
responsibility for directing medical care for injured employees during the first 30
days following a claimed industrial injury,pursuant to the Labor Code.
3. Direct the County Administrator to prepare a proposal for Board consideration during
budget hearings, for an occupational medical program staffed by occupational
medical professionals dedicated to the treatment of industrially injured employees.
(See Appendix D)
4. Direct the County Administrator to seek to reopen union contracts for the limited
purpose of amending the current salary continuation program.(See Appendix F)
5. Direct the County Administrator to seek to reopen union contracts for purposes of
amending the current 3-hour medical appointment benefit.
8
IV CONCLUSION
An indication of the vulnerability of the workers' compensation system in this state is the
fact that many insurers specializing in workers' compensation insurance have opted out
of underwriting workers' compensation insurance in California.Recently, State
Compensation.Insurance Fund,the insurer of last resort in this state, announced that in
some instances they may have to stop providing new workers' compensation insurance
due to financial deterioration. Even more significant is the fact that seven insurance
carriers have become insolvent in California in the last four years.
The cost of workers' compensation, like that of several other County programs mandated
by the State,continues to grow at a rate which the County's general purpose revenues
cannot keep pace. It is imperative, in the absence of significant corrective legislation
from Sacramento, that the County take steps in cooperation with its employees to reduce
the frequency and severity of workers' compensation cases, and to dramatically slow the
growth in workers' compensation costs.
9
GLOSSARY
Temporary Disability(TD)-Temporary disability benefits are provided to injured employees
who are unable to work due to the effects of an industrial injury. TD benefits are calculated based
on 66 2/3%of the employee's average weekly wage. This amount, under AB749, is now subject
to a maximum limit of$602 per week for injuries occurring on or after U1/03.Prior to AB749,
the statutory maximum limit was $490 per week.TD benefits continue until an employee is
determined to have reached Permanent and Stationary Status by their treating physician.
Permanent Disability (PD)-Permanent disability benefits are provided to those employees that
are left with a permanent physical residual as a result of their industrial injury. These benefits are
determined medically and are assigned a percentage disability, which indicates the magnitude of
their disability(See Labor Code section 4658,4660).These benefits are paid in addition to any
temporary disability benefits that might be owed.
Indemnity Claims--Indemnity claims are workers'compensation claims with exposure for
temporary disability payments and/or permanent disability payments.These claims are sometimes
referred to as "lost-time"claims since temporary disability payments are made when an employee
loses time from work. Indemnity claims are much more costly than Medical-only claims and
remain open for a much longer period of time.
Medica"aly Claims-As the name implies,Medical-only claims are claims that result in only
miner medical care.No disability is associated with these types of claims and the severity is
much lower as the only exposure is minimal medical treatment costs. Medical-only claims
typically are closed within a short period of time,usually 3 to 6 months.
Permanent and Stationary(P&S)-Otherwise known as"P&S",this is a legal workers'
compensation term which indicates the employee has reached a medical plateau where further
care is unlikely to significantly improve the level of disability. A medical professional,such as a
doctor or a chiropractor, determines when an injured employee has reached a level that is
permanent and stationary.The finding ofP&S triggers an end to temporary disability benefits and
may result in provision of permanent disability payments and/or vocational rehabilitation
benefits.
10
Appendix A — County Comparisons
Appendix A - County Comparisons
Contra Costa Risk Management commissioned a comparison study to assess how its
workers' compensation program compared with other similarly sued counties. This study
focused on evaluating similarities and differences between County policies and workers'
compensation exposures and costs. Counties selected for this comparison were chosen
based on size(employee population), geography(Northern California), and exposure
(annual claim frequency).
The selected Counties are: Alameda County, Santa Clara County, Sacramento County,
San Mateo and San Joaquin County.
The table below sumnivizes basic statistical information from each county for FY01-02.
Open
Employees Wages Reported Indemnity
County Ali Paid WC Claims Claims
Alameda 10,050 $ 553,991,041 1,153 1,053
Contra Costa 9,716 $ 638,657,179 1,175 1,671
Sacramento 15,104 $ 619,183,511 1,745 2,305
San'Jo uin 7,183 $310,000,000 901 633
San Mateo 5,445 $254,557,782 684 807
Santa Clara 17,166 $964,920,962 1,751 1,511
.Each county contacted prodded information on selected program elements. These
elements are key in that they influence workers' compensation costs either directly or
indirectly. Each of the selected counties were asked questions pertaining to:
♦ Modified duty implementation,
Use of initial 30 day medical control,and
Salary continuation benefits.
Here are the responses from each County:
Ala .eda County
♦ .Alameda.County has a voluntary modified duty program. Departments are
encouraged to provide temporary modified duty work when ever possible.
+ The County exercises its right to direct employees to County approved medical
providers during the initial 30 days, unless the employee has properly pre-designated
a physician.
♦ The County provides a salary continuation program up to 80%of the employees
salary. This benefit is provided for up to 365 cumulative days. Taxes are withheld
from the salary continuation benefit portion.
Appendix A—County Comparisons I
Contra Costa County
♦ Contra Costa County has a voluntary modified duty program. Departments are
encouraged to provide temporary modified duty work whenever possible.
♦ The County dues not exercise its right to direct employees to County approved
medical providers during the initial 30 days.
r The County provides a salary continuation program up to 86%of the employee's
salary. This benefit is provided for up to 365 cumulative days. Taxes are not withheld
from the salary continuation benefit portion.
Sacramento,County_
♦ Sacramento County has a voluntary modified duty program. Departments are
encouraged to provide temporary modified duty work whenever possible.
♦ The County exercises its right to direct employees to County approved medical
providers during the initial 30 days,unless the employee has properly pre-designated
a physician.
♦ Sacramento County does not provide a salary continuation program. Injured
employees are able to use their sick leave or other leave balances only to supplement
their workers' compensation disability benefit.
San Joaquin County
♦ San Joaquin County has a voluntary modified duty program. Departments are
encouraged to provide temporary modified duty work whenever possible.
♦ The County exercises its right to direct employees to County approved medical
providers during the initial 30 days,unless the employee has properly pre-designated
a physician.
♦ San Joaquin County does not provide a salary continuation program. Injured
employees are able to use their sick leave or other leave balances only to supplement
their workers' compensation disability benefit.
SanMateo County
♦ San Mateo County has a voluntary modified duty program. Departments are
encouraged to provide temporary modified duty work whenever possible.
r The County exercises its right to direct employees to County approved medical
providers during the initial 30 days,unless the employee has properly pre-designated
a physician.
♦ San Mateo County provides 90 days of salary continuation. Injured employees are
provided 100%of their salary for 90 calendar days. After that they may use their sick
leave or other leave balances only to supplement their workers' compensation
disability benefit.
Appendix A—County CAmpw isons 2
Santa Clara County
♦ Santa Clara County has a voluntary modified duty program. Departments are
encouraged to provide temporary modified duty work whenever possible.
♦ The County exercises its right to direct employees to County approved medical
providers during the initial 30 days, unless the employee has properly pre-designated
a physician.
♦ Santa Clara County does not provide a salary continuation program. Injured
employees are able to use their sick leave or other leave balances only to supplement
their workers' compensation disability benefit.
In addition to program policy differences, loss data was analyzed to determine what
impact, if any, these policies might have on workers' compensation costs. The data used
in this comparison was secured from the FY01-02 Self-Insurers Annual Report submitted
by each County to the State Department of Insuraance, Self-Insurance Plans. The
following table provides statistical comparisons of key program ratios. The individual
measurements in the table below are explained in more detail in the following notes.
Rankings in the table below are color coded as follows: Highest, Second,Third.
A. B. C. D. E. F.
All data is
from FY01-02 WC Claims WC Paid in Avg. Avg. Medical Open Lost time Salary
Filed per FY01-02 Indemnity Paid per cases as a Continuation
100 per Paid per Deported Claim percent of Percentage
Employees Employee Reported In FY01-02 Annual Claims and duration
County Claim in Reported
FYOI-02
Alameda 11.5 $ 1,542 $ $,415 $ 5,025 91% 80%to 365
dans
Contra Costa 12.1 $ 1.463 $6,430 $5,664 142% 86%to 365
days
Sacramento 11.6 $ 1,029 $4,417 $4,487 132% 0%
San Joa in12.9 $ 1,010 $4,133 $3,705 70% 0%
San Mateo 12.6 $1,140 $4,748 $4,329 118% 100%to 90
da s
Santa Clara 10.2 $890 $4,467 $4,263 86% 0%
County
Avera a 11.8 $1,179 $5,435 $4.579 107%
If Contra Costa County's average indemnity and average medical paid were reduced to
the County Average shown in the table above, Contra Costa County would have paid
$2,444,000 less in workers' compensation benefits in FYO1-02.
A. The number of workers' compensation claims filed per 100 employees is one
measure of injury frequency. This measure looks at the relative frequency of injuries
for a given employee population. The higher the number,the more frequently injuries
Appendix A—County Comparisons 3
Appendix B --Contra Costa County Program Cost Driver Analysis
The following analysis of Contra Costa County's workers' compensation trends is
targeted at identifying the primary program cost drivers. In conducting this analysis, data
from the County's workers' compensation claims system was obtained dating back four
years to FY99-00.
General Trends
Over the last three years,the number of workers' compensation claims reported annual!
have remained essentially unchanged Claim Frequency by Fiscal year
until FY02-03. The Claim Frequency
by Fiscal Year chart shows that annual
claims reported have hovered around t`°°
1,345 claims during the last three fiscal °
years(FY99-00 to FY01-02). The table
below shows the total number of claims 0 800
reported for each Fiscal year.FY02-03 e00
figures are at the end of 6 months. ono =—
FY02-03 frequency is approximately 2�a
16%higher than prior years at the 6 _
month mark. IW 2W Ub 4W 5W SW 7L4D Ub SW 133 IlLb t2W
I Y99-JO FYt 01 FYMW---^FY02-03 j
Fiscal Year Number of Claims
FY99-00 1,331
FY00-01 1,359 7ota3 WC Payments
FY01-02 1,349 20
FY02-03* 680
Although claim frequency has been
stable, workers' compensation costsla
4" rr�`
have risen steadily over the last several T to
z ,
years. Annual workers' compensation w <
benefit payments have grown from '. z<
$13.1 million in FY99-00 to $18.2 s t
M
million in FY0 -02,an increase of ty
39%. For the first 6 months ofFY02-
03,$9.9 million has already been paid. FYN-" Fyo"l _ F"1-02 FY02.03'
*It is projected that this figure will
reach$19.8 million by the end of the fiscal year.
Medical Casts
Medical is the single largest component of the County's workers' compensation costs
comprising 43%of total benefits paid in FY01-02. Medical costs grew significantly
(56%)from FY99-00 to FY01-02.
Appendix B-Program Cost Drivers i
_.
While medical costs have risen statewide(inflation),the growth here is likely due more
to over utilization of medical services(possible over treatment)than medical cost
inflation. This is evident in the Average Medical Paid chart below.
The average Medical Paid/Claim chart shows the increase in medical costs over the last
several years. The most significant increase occurred in FY01-02, but growth is evident
in the prior year as well. Payment analysis reveals three medical categories that exceed
$1,000,000 annually in payments: chiropractic care, hospital charges and payments to
physicians.
Chiropractors and physicians Avg.U"cat Mc=aim
directly influence claim costs
because their recommendations
h
and opinions impact current and I
future medical costs and the
extent/duration of disability. The 4 ''
Labor Code provides employers '
f ry,i
with the right to direct
employees to an employer '
selected medical provider for
$aoo
treatment the first 30 days "3
following an injury. This enables $2W
the employer to determine
causation, define the scope of the s
injury and secure a diagnosis and W t 0 M 9 V
a treatment plan and prognosis.
The County currently does not '"FY 0°0t
utilize this option.
Savings in medical costs can be achieved through two methods; 1) implement employer
control of treatment during the first 30 days, 2)utilize medical providers with
occupational medical expertise to address causation,disability duration and treatment.
Temporary Disability Costs
Temporary disability costs account for 21%of total workers' compensation benefits paid
in FY01-02. Employees who are disabled as a result of their injury are entitled to
temporary disability benefits. These benefits are mandated by the State of California and
are based on the employee's average weekly earnings. Prior to 1/1/03,the maximum
temporary disability rate had been capped at $490 per week,effective 1/1/03, AB749
increased the maximum weekly amount by 22.6%to$602 per week. The objective of the
relatively low temporary disability rate is to motivate injured employees to recover and
return to work as soon as practical as there is no financial incentive to remain disabled.
However,Contra Costa County provides its employees with salary continuation benefits
that,make up the difference between the temporary disability rate and 86%of the
employee's normal wages(safety personnel are entitled to 100%pursuant to Labor Code
Appendix B-Progrwn Cast Drivers 2
are occurring. In this measure of frequency, Contra Costa ranks third highest with an
injury frequency of 12.1 injuries per 100 employees.
B. This measurement looks at the amount of workers' compensation payments made
during the fiscal year per employee. It provides a measure of the annual cost of
workers' compensation benefits relative to employee population,one measure of
severity. Higher amounts indicate greater workers' compensation benefit
expenditures per employee. Contra Costa ranks second in this measurement.
C. The average indemnity paid per claim measures the total cost of disability associated
with workers' compensation claims in FYO 1-02. This measurement is affected by the
duration of disability and any resultant permanent impairment. Higher figures
indicate greater disability duration and/or elevated levels of permanent impairment.
This figure reflects only the amount paid during FY01-02. Contra Costa ranks second
highest in this category.
D. The average medical paid per claim measures the cost of medical associated with
workers' compensation claims during FY01-02. This measurement reflects the total
cost of medical benefits relative to the number of claims reported during the fiscal
year. Higher payments indicate greater utilization of medical benefits. Contra Costa
County ranks highest of the 6 counties.
E. Open lost time claims as a percentage of annual claim reported measures the
magnitude of existing lost time claims relative to annual claim frequency. The highest
cost workers' compensation claims involve lost time. This measurement verifies that
higher number of lost time claims results in higher overall workers' compensation
costs. Contra Costa County ranks highest in this measurement.
F. Salary continuation benefits are provided by three counties. Contra Costa provides
the highest benefit amount, making up 6%0 of the employee salary for up to 365
aggregate days of disability. Contra Costa does not withhold taxes from salary
continuation benefits. Alameda also provides salary continuation benefits but only up
to 80% of the employee's salary. Alameda withholds taxes from these benefits. San
Mateo also provides salary continuation benefits of 100%of the employee's salary
but for 90 days only.
Conclusion
All surveyed counties have implemented temporary modified duty programs to reduce
the duration of work-related disability and all but Contra Costa exercise initial 30-day
medical control. Three counties(Alameda, Contra Costa, San Mateo)provide a salary
continuation benefit in addition to the State mandated temporary disability benefit. Only
Alameda and Contra Costa have salary continuation benefits for up to 365 days. Contra
Costa's salary continuation benefit is higher than Alameda's and is not subject to income
tax withholdings,unlike Alameda.
Appendix A--County Comparisons 4
Of the two Counties(Alameda and Contra Costa)that provide a significant salary
continuation benefit, both exhibit the two highest average indemnity and medical
payments in the study(rank first and second)and have the two highest rankings for
workers' compensation benefits paid per employee. Centra Costa does not withhold taxes
from its salary continuation benefit whereas Alameda does.
Contra Costa is the only county that ranks in the top three in every measured category.
These statistics would suggest that Contra Costa's workers' compensation program is
relatively more costly than the other Counties in this comparison.
♦ Contra.Costa ranks first in three categories, Average Medical Paid per Reported
Claim, Open Lost Time Claims as a Percent of Claims Reported,and Salary
Continuation.
♦ Contra Costa ranks second in 2 program measurements;Average Indemnity Paid per
Reported Claim and WC Paid per Employee in FY0102.
♦ Contra Costa ranked third in Injuries per 100 employees.
Appendix A—County Comparisons 5
Appendix B — Contra Cosh County Program Cost Driver Analysis
12
4850) for up to 365 days. At the County's current salary continuation rate of 86%, injured
employees are financially better off'being disabled under workers' compensation than
working(see Appendix Q. Employees(in tax bracket of 15%or higher)actually take
home more money on disability than while working since workers' compensation
benefits and the County salary continuation benefit are not taxed.
The County can potentially reduce temporary disability costs by revising its salary
continuation level below 86%and/or reduce the duration that salary continuation is
provided. Any changes in this area will take up to a year before savings will be realized
as existing cases will hely continue under the existing 365 day entitlement
Total Potential Fiscal Impact
Workers' compensation benefit payments have increased steadily over the last several
years. From FY99--00 to FYOO-01 benefit payment increased more than 13%e. From
FY00-01 to FYO 1-02 benefit payment increase another 22.6%. In total,benefits paid
exceeded$18M in FYO1-02 (not including salary continuation). With the benefit
increases that go into effect 1 I l/03,total WC benefits are expected to increase in FY02-
03. Given this situation it is unlikely that benefit payments will f11 below current levels.
Efforts must be directed at reducing the rate of growth.
The table below provides a summary of the actual amounts paid by benefit category
(Medical and Temporary Disability) in FYOO-01 and FYOI-02. FY02-03 figures are
projected based on the growth rates seen in F'YOl-02. The projected temporary disability
costs for FY02.03 also include the 2.2.6%rate increase effective 1!1103. Permanent
disability,vocational rehabilitation benefits and allocated expenses add another$6.5M
annually to workers' compensation casts.
Catesory. FY00-01 FY01-02 FY02-03 Pro`ected.
Medical $ 6,216,530 $ 7,802,942 $ 9,792.,692
Te!Morary Disability $ 3,238,890 $ 3,750,971 $4,778,737
Sub-Total $9,455 420 $ 11,553,913 $ 14 571429
Permanent Disability,
Vocational
Rehabilitation, $ 5,305,956 $6,543,410 $ 6,785,145
EMvnses
Grand Total $ 14,761,375 $ 18,097,324 19,779,202
Based on the table above, a reduction in the rate of growth of these benefits would
potentially yield significant savings. IfFY02-03 benefit payments grow at the same pace
as FYO1-02,the County can expect to pay$14.57M in medical and temporary disability
benefits alone. A 10%Q reduction in total benefits costs for FY02-03 would yield savings
of approximately$1.46M. A 15%reduction would yield savings of$2.19M in these two
categories alone.
Appmdix B-Frog=Cost Drivers 3
Appendix C -- Salary Continuation Policy Analysis
13
Appendix C - Salary Continuation Policy Analysis
This analysis looks at the difference in take home earnings for employees who are working vs.
those who are off work collecting temporary disability and salary continuation. Under State
workers' compensation laws, employees who are disabled as a result of an industrial injury are
entitled to temporary disability benefits(66 2!3%o of their weekly earnings). The current maximum
weekly temporary disability payment is $602.The County's salary continuation program provides
additional non-taxed payments to these employees up to 86%n of their normal salary.The
County's benefit is cumulative up to a total of 365 days.
The conclusion is that the County's salary continuation program inadvertently provides some
employees who are off work due to an industrial injury with higher take home earnings than when
they are working.County employees collecting salary continuation benefits take home
approximately 6 to 12%more money than when working their normal duties depending on their
tax bracket.The example below assumes an effective tax rate of 20%(combined federal and
state). Essentially,employees with an effective tax rate greater than 14%will take home more
money while on workers' compensation disability under the salary continuation program than if
they',were working.
D
Employee Weekly WC Weekly Meekly weekly Take meekly Annualized
Weekly Disability Earnings under Take home home Difference per
Earnings payment 86% Salary earnings earnings on in Earnings Salary cont.
per State Labor Cont. Program after WC While on WC Plait
Code taxes 20%
$500 $333 $430 $400 $430 +$30 +$1,564
$75D $544 $645 $604 $645 +$45 +$2,344
$1,000 $602 $860 $844 $860 +$ +$3,120
$1,250 $602 $1,075 $1,000 1 $1,075 1 +$75 1 +$3,900
$115010 $602 $1,290 $1,204 1 $1,294 +$90 +$4,680
$1,750 $602 $1,505 1 $1,400____I_ $1,545 +$105 +$5,454
Column A lists the various weekly earnings in this example. These figures represent an employee's normal
weekly earnings_
Column B is the applicable Temporary Disability payment mandated by the State for the respective Weekly
Earnings figure in column A.
Column C lists the applicable take home amount for an employee who is temporarily disabled due to an
industrial injury under the County's salary continuation program.Amounts listed are 86%of the Weekly
Earnings figure listed in column A.
Column D is the take home earnings of working employees atter taxes., assuming an effective total tax rate
of 20%(combined federal and state taxes).Employees in higher tax brackets will benefit more from the
salary continuation program.
Column E is the take home earnings for employees who are on WC disability and collecting salary
continuation benefits.These benefits are not taxed.
Column P shows the weekly difference in take home earnings between employees who are working and
those who are on WC disability and collecting salary continuation benefits.Disabled employees take home
Appendix C—Salary Continuation Analysis I
_.. _.
more money than working employees under every instance in this comparison.A positive figure in this
column indicates higher take home earnings while disabled than while working full duty.
Column G is the annualized amount in Column F.
The'departments,through the payroll system, fund the salary continuation cost. Total annual casts
for the salary continuation program were obtained from the Auditor-Controller for the three fiscal
years FY99-00,FYOO-01 and FYOI-02.The table below summarizes salary continuation and
workers' compensation temporary disability payments. Salary continuation costs on a per
employee basis have jumped significantly from FYOO-01 to FYOI-O2, by more than 30%.
Employee count figures are those reported to the State Department of Insurance, Self-Insurance
Plans Division via the annual Self-Insurers Annual Report.
Fiscal Year Salary Temporary Total Cost #of Salary Cont.
Continuation Disability Employees cost per
Em to rye
FY99-00 $ 1,30,789_ $ I Ofr4,521 $2,414,310 12,359 $109.22
FYOO-01 $ 1,110,972 $ 1,824,892 $2,935A4 11 007 $100.93
FYOI-02 $ 1,281,140 $ 1,777,573 $3,058,713 9,716 $131.86
As can be seen, salary continuation benefits average more than$1.2 million annually. A reduction
in the duradon of salary continuation benefits from.the 365 aggregate days will provide the
greatest financial savings. Savings ultimately may reach$800,000 to$1,000,000 annually based
on a,reduction in the duration of salary continuation benefits from 365 to 60 days.
Appendix C—Salary Continuation Analysis 2
Appendix D —Occupational Medical Services
14
Appendix D— Occupational Medical Services
California's workers'compensation system is a complex and costly no-fault system that relies
exclusively on the medical community to determine, assess and dictate disability duration and
medical treatment. As a result, it is critical to the effective management of workers' compensation
exposures for medical treatment and evaluations to take place with knowledgeable occupational
health professionals who are familiar with the concepts of occupational injury causation and
apportionment. They must be capable of distinguishing between temporary aggravations of pre-
existing conditions vs. new causal events to assist in separating out industrial events from non-
industrial conditions or disease processes. The concepts of "permanent and stationary",
"permanent disability", and"qualified injury worker"present significant financial exposures to
the County and require medical professionals familiar with these concepts.Absent these
capabilities,the County's ability to manage and contain medical casts can be significantly
hampered causing workers' compensation costs to escalate rapidly'.
The majority of employees who sustain industrial injuries currently seek medical treatment at the
County medical facility. These treatment costs are paid by the workers' compensation program in
the forth of medical expenditures. Physicians that do not have occupational medicine expertise
staff the County medical facility.If the County medical facility is interested in establishing an
occupational medical facility with appropriately trained physicians, this would greatly assist in
containing the County's growing workers' compensation medical costs.
In the event the medical center is unable to secure occupational medical expertise,occupational
medical services are readily available in the public sector and can be employed with no net
increase in medical cost to the County. The County currently pays for medical care provided by
the County medical facility. The cost of this medical care would simply be shifted from the
County medical facility to an outside occupational medical clinic. Because all workers'
compensation related medical treatment is subject to a state mandated industrial medical fee
schedule, all charges are subject to the fee schedule reductions.
Net additional cost to the County is expected to be zero.The potential benefit is an increased
capability to contain and control workers' compensation claim costs through improved medical
and disability management capabilities,expedited resolution of permanent disability status and
vocational rehabilitation issues.
' WCRI Media Release 12/27/02
Appendix D—occupational Medical Services
Appendix E -- Ergonomic Injury Prevention Program
15
Appendix E—Ergonomic Injury Prevention Program
Data from the Bureau of Labor and Statistics(BLS)identifies musculoskeletal disorders(MSD,
more commonly referred to as RMI or repetitive stress injuries)as the leading cause of
occupational disability. BLS data shows that RMI type injuries:
A 'Account for one-third of all work-related lost-time injuries,
A ',Account for the highest duration of disability, averaging more than 19 days away from work,
73%more than the next highest injury type
➢ Carpal Tunnel injuries,the most common type of RMI averages 27 lost workdays, 35%more
than the next leading injury type.
In recognition of these injuries,Cal OSHA,the state Occupational Health and Safety
Administration implemented General Industry Safety{order,Article 105 in July 1997.More
commonly referred to as the State Ergonomic Standard,employers in California are required to
"establish and implement a program designed to minimize RMIs".Prevention programs must
"include a work-site evaluation,control of exposures which have cause RMIs and training of
employees"exposed to RMIs in the work place. Data from.the County Risk Management
department documents the financial exposure on workers'compensation RMI injuries to exceed
$5.3 million over the last 3.5 years with the number of claims categorized as RMI increasing 40%
from FY98-99 to FY00-01.
In light of the above,Contra Costa County Risk Management has expressed an interest in
implementing a comprehensive,coordinated County-wide ergonomic program to reduce the
incidence and severity of employee work-site injuries. Furthermore,the County desires a program
that would effectively comply with the State's Ergonomic Standard. The objectives and key,goals
of the ergonomic program are:
To identify and address ergonomic issues in the work-place so that prevention efforts can be
employed to reduce employee injuries,particularly injuries caused by repetitive motions,
➢ Provide training to department management and employees when significant RMI exposures
are identified,
> To facilitate required ergonomic changes to prevent or reduce disability associated with
occupational injuries,
➢ To provide cost effective and timely ergonomic solutions to employees with occupational
injuries and to prevent injuries from becoming;lost-time claims.
Anticipated cost to the County is expected to be approximately$110,000 annually for program
administration and$250,000 annually in ergonomic evaluations and equipment purchases.Not all
of these costs will be additional as individual County departments current expend an unknown
amount on ergonomic equipment. Data from the workers' compensation program reveals that
approximately$85,400 was spent in FY01-02 for post injury ergonomic evaluations and
equipment. We estimate net additional costs to be approximately$275,000 annually.
The County's average workers'compensation claire ultimately costs the County$15,600 per
claire.Based on this average,the ergonomic injury prevention program would break even by
preventing 17 workers'compensation injuries annually or a reduction in annual frequency by 1%.
A 5%reduction in injury frequency would translate into a savings of over$1.1 million in
workers' compensation benefit casts.
Appendix E—Ergonomic Injury Prevention Program
Appendix F—Average Occupational Disability Duration
16
Appendix F—Average Occupation Disability Duration
We believe that changes to the salary continuation program may help to reduce the financial
incentives for employees to continue on disability yet ensure that injured and disabled employees
continue to receive adequate compensation during the acute stages of their recovery.
With the increase in the maximum weekly workers'compensation disability rate to$602 from
$490,more employees will receive adequate disability benefits while recuperating from their
industrial injuries.
We secured disability days data from the County's 2002 OSHA log(OSHA requires calendar
year reporting).It is clear that the vast majority of occupational injuries do not require 365 days
of disability.The OSHA log data indicates that the average duration of lost time associated with
the County's occupational injuries in 2002 is 63.83 days.
Based on this figure,if the County reduces the duration of the salary continuation benefit to the
average disability duration(i.e.60 days),rather than an arbitrary 365 days, it would:
- help to reduce the windfall that some injured employees receive while on disability and
reduce the financial incentive to seek extended disability tunes.
- at the same time, granting salary continuation for up to 60 days would provide benefits to
the majority of employees during the acute stages their recovery.
We anticipate that the County will incur no additional costs as a result of this change and will
likely see a financial savings through the reduction in disability duration and decreased salary
continuation payments.