The Arkansas Workers’ Compensation Commission is considering closing its office in either Fort Smith or Springdale, effective July 1, 2014, because of a budget shortfall. Commissioners hope to make a decision in the next few weeks, commission Chairman A. Watson Bell said.
Bell of Searcy said the commission will consider factors like the caseloads in the two offices, potential savingsfrom closing either office, the space in the respective offices and travel times before deciding which office to close.
He said he’s heard from Fort Smith and Springdale officials concerned about the possible closure.
The commission’s other office is in Little Rock, said James Daniel, assistant chief executive officer for the commission.
The Fort Smith office - in Sebastian County - has six employees and the Springdale office - in WashingtonCounty - has three employees, but the commission won’t lay off any employees when it closes one of the offices, he said.
The leases for the two offices have been renewed through June 30, Daniel said.
The Fort Smith office’s expenses - not including employee salaries and benefits - were $53,367 for the past fiscal year, compared with Springdale’s $48,205, Daniel said. Administrative law judges hold hearings on claims at the offices, where attorneysadvise employers and some claimants and mediate settlements, he said.
In fiscal 2013, there were 419 workers’ compensation claims filed from Washington County, compared with 322 from Sebastian County among 6,672 claims filed from across the state, Daniel said.
Bell said the closure is being considered because the commission’s Death and Permanent Disability Trust Fund has an unfunded liability of about $135 million.
The fund had assets of$128.5 million and liabilities of $263.6 million as of June 30, 2012, according to the actuarial firm of Osborn, Carreiro & Associates of Little Rock. As of June 30, 2010, the fund had an unfunded liability of $100.3 million with assets of $138.7 million and liabilities of $239 million.
The trust fund’s unfunded liability has increased from $8 million in 1995 to about $135 million as a result of a decreasing return on the commission’s investments that state law requires to be placedin certificates of deposit with Arkansas banks. Decreasing workers’ compensation insurance premium rates and taxes, and increasing numbers of successful claimants and increased benefits paid to new claimants led to the imbalance, Daniel wrote in a report.
The trust fund’s balance declined from a peak of $142.4 million on June 30, 2008, to $128.5 million on June 30, 2012, as premium tax revenue dipped from a high of$29.6 million in fiscal 2008 to $18.9 million in fiscal 2011 before increasing to $21.9 million in fiscal 2012, and then slipping again to $19 million in fiscal 2013, according to Daniel’s report.
The 2012 revenue included a one-time payment of $2.9 million from a national settlement with AIG, the large New York-based insurer that had been accused of under-reporting its workers’ compensation premiums.
The number of claimants receiving benefits from the trust fund increased from 1,053 in fiscal 1997 to 1,356 in fiscal 2008 to 1,481 in fiscal 2012. Total successful claims increased from $6.2 million in fiscal 1997 to $12.9 million in fiscal 2008 to $15.5 million in fiscal 2012, the report said.
The state’s business and labor groups haven’t reached a consensus on how to address the problem.
Although Gov. Mike Beebe “has kept management and labor apprised of this status for some time now, they have failed to agree on any of the proposed resolutions put forward, leaving no option to address this issue other than these closings,” Bell wrote in a letter to Fort Smith Mayor Sandy Sanders.
Beebe spokesman Matt DeCample said the most obvious way to increase funds for the commission would be to raise the insurance premium tax, but there didn’t seem to be support in the Republican-controlled Legislature to do that.
Earlier this year, a billsponsored by Rep. Jim Nickels, D-Sherwood, would have increased the maximum allowed premium tax on a workers’ compensation insurance policy from 3 percent to 4 percent, crediting any funds that exceed 3 percent to the Death and Permanent Total Disability Trust Fund.
The Arkansas State Chamber of Commerce’s members “were firmly opposed to an increase in the premium tax,” said Kenny Hall, the chamber’s executive vice president.
Alan Hughes, president of the Arkansas AFL-CIO, said the labor federation backed Nickels’ measure.
Bell wrote to Sanders that the commissioners “take our fiduciary responsibilities very seriously” as trustees for the fund and the widows, children and permanently injured workers whom the fund serves.
The other two commissioners are Karen H. McKinney and Philip A. Hood.
Since the fund’s shortfall wasn’t remedied in this year’s legislative session, “we have been forced to adopt a strategic financial plan that includes closing one of the offices in Northwest Arkansas as a first step,” Bell wrote.
The commission has beenoperating frugally and has reduced its number of employees from 140 in 2002 to 108 this year through attrition, Daniel said.
According to a summary of its strategic financial plan, the commission will strictly enforce a new rule to ensure the collection of all premium taxes due under state law and is considering proposing a rule to ensure the collection of premium taxes from independent truckers in accordance with Act 1166 of 2013. The commission is also examining the possibility of reorganizing the agency by eliminating “some divisions that have some duplications.
“As a last resort, if the commission’s financial condition does not improve, the commission will consider the possibility of employee furloughs, or a reduction-in-force in accordance with state policy,” according to the commission’s plan.
Sanders urged the commission in a letter to Bell to retain its Fort Smith office “so that it can continue to provide its valuable services to the second largest city in the state.”
Fort Smith has many manufacturing jobs, and Sebastian County has more manufacturing employees than any other county except for Pulaski County, Sanders wrote.
“The ill-advised closure of the Fort Smith office will place undue burden on the numbers of individuals and employers who utilize the commission’s services,” he said. “Continued accessibility is critical.”
Springdale Mayor Doug Sprouse said in a telephone interview that he intends to review the possible closure of the Springdale office and hopes the office stays open.
The Arkansas Workers’ Compensation Commission was created through an initiated act in 1939. A tax of 3 percent on premiums paid by employers to workers compensation insurance carriers was created to fund the commission, according to a report written by Daniel.
The commission also receives a 3 percent tax from employers that self-insure their worker-compensation risks. The tax is based on what the employer’s premium would be if it purchased a policy from a carrier, Daniel said in his report.
The commission doesn’t receive any state general revenue, and “the premium tax has never been raised,” according to Daniel’s report.
The commission decides how the premium taxes will be allocated among its three funds, he said.
The three funds are the administrative fund that pays the expenses to run the commission; the Death and Permanent Total Disability Trust Fund; and the Second Injury Trust Fund, which still exists but has not been funded in recent years because claims against it have not been allowed since Jan. 1, 2008, Daniel’s report said.
Northwest Arkansas, Pages 13 on 07/21/2013