Illustration: From “Other’s People’s Money… And How the Bankers Use It”

by Louis D. Brandeis  Harper's Weekly, November 29, 1913 by James Montgomery Flagg

“ Using the workers compensation system as a cash cow for their (BIAW) political ambitions is flat out corrupt and should be stopped."    - Senator Karen Keiser

The research for this report began as an attempt to answer two simple questions:

First, why has school funding in our State plunged dramatically in the past 10 years?

It became obvious that the Building Industry of Washington (BIAW) played a major role in electing dozens of anti- school politicians during the past 10 years, as well as defeating dozens of pro-education candidates. In the 2008 election alone, the BIAW spent nearly $10 million dollars and boasted in their Building Insight Newsletter that they were “5 for 5” in defeating progressive pro-education legislative candidates in hotly contested swing districts.

This led to the second question: Where did the BIAW get $10 million to spend on the 2008 election? Like most people, I assumed the money came from contributions from BIAW’s own members. However, this turned out not to be the case. Instead, as is explained in more detail below, nearly all of the $10 million came from diversion of tax payer dollars.

This report explains how the BIAW diverted more than $10 million dollars per year in tax payer money to use for political purposes. We conclude that this questionable activity has corrupted the entire political process in the State of Washington and is the underlying reason school funding in our State plunged to 47^TH in the nation.

While researching where BIAW was getting tens of millions of tax payer dollars every year, I discovered an even bigger scandal, this one involving a “Retro” insurance scam. In 2007 alone, nearly $200 million dollars of tax payer money was diverted through the Workers Compensation “Retro” program to nearly five dozen private Retro insurance agencies such as BIAW. The total cost to tax payers of this questionable Retro “refund” program has been more than $2 billion dollars and is rising rapidly.

But it turns out that even $2 billion dollars in losses is just the tip of the iceberg… because Retro is only a  part of a much larger Department of Labor and Industries scandal that is losing more than $3 billion dollars annually such that the Workers Comp program is now in debt by nearly $30 billion dollars. $1 billion of this unpaid annual debt is from Retro employers, bring the entire tax payer cost of the Retro program to more than $1.2 billion dollars per year.

 Such a claim may seem difficult to believe. After all, our entire annual State budget is only $16 billion dollars. How can a single State agency be losing billions of dollars every year for more than 10 years without it being noticed? Recently the United States Senate held a hearing to determine how Bernie Madoff could have constructed a $50 billion dollar Ponzi scheme without any federal regulators noticing his questionable accounting practices. I believe we have uncovered an even worse Ponzi scheme right here in our own State. At least Madoff was only losing the money of private investors. The Ponzi scheme we are about to describe involves the loss of billions of tax payer dollars, millions of which were improperly diverted to subvert hundreds of elections throughout our State. In short, what we are about to describe is the worst economic and political scandal in the history of our State.

Tax Payers in our State have been subjected to an incredible scam during the past 15 years involving diversion of over $1 billion dollars in tax payer money, more than $300 million going to the BIAW, of which they used over $60 million to buy both local and State wide elections.

The following chart shows the cost to taxpayers of the BIAW portion of the Retro program for the years 2002 to 2007:

BIAW Retro Program, Refund/Assessment Summary 2002 to 2007 (in $ Millions)

Source: WA ST B&I Retrospective Rating Program, Refund/Assessment Summaries, July 1st http://www.lni.wa.gov/ClaimsIns/Insurance/Reduce/Qualify/FinInfo/default.asp

From 2002 to 2007, BIAW Retro “Refunds” cost State Tax Payers $197 million

From 2002 to 2007, BIAW members paid $925 million in premiums to the State Workers Compensation Insurance Fund. During these same six years, they had $920 million in Claims meaning that the maximum total refund for this entire six year period should have been $5 million or $1 million per year. However, Retro “refunds” for these 6 years equaled $202 million for an average of more than $40 million per year. Thus, the cost to the tax payers of the Retro program for these 6 years was $202 million minus $5 million equals $197 million dollars. [1]  

The cost to State tax payers is currently about $50 million dollars a year. [2]

BIAW diverts 20% of its Retro Tax Payer Gift into more than 20 Political Action Committees resulting in a political slush fund of about $10 million dollars per year. [3]  None of this $10 million per year comes from BIAW members. Instead, every penny comes from tax payer subsidies given to the BIAW.

The original intention of the State Workers Comp Retro Insurance program was to lower the cost of workers compensation insurance by increasing safety. The Retro program has failed to reduce cost or improve safety. Instead it has added $1 Billion in tax payer dollars being diverted to non-insurance purposes, of which BIAW has diverted over $10 million dollars per year into buying local and state wide elections.

This graph shows the Annual Cost to Tax Payers of the BIAW Retro Program has skyrocketed from $5 million per year in 1992 to $41.7 Million Dollars per year in 2007

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[1] Source: WA ST B&I Retrospective Rating Program, Refund/Assessment Summaries, July 1st http://www.lni.wa.gov/ClaimsIns/Insurance/Reduce/Qualify/FinInfo/default.asp

2007 data determined using 2008 PDC BIAW complaint Declarations.

[2]  Th 2007 and 2008 average per 2008 PDC BIAW complaint Declarations. Current data on BIAW costs is not yet posted on the Department of Labor and Industries website.

[3] See the end of this report for a partial summary of these Political Action Committees taken from 2007 and 2008 PDC reports.