Did our State Attorney General make a Billion Dollar Error?
Did our Attorney General make a Billion Dollar Error?
Update from David Spring, M. Ed., October 3, 2009
On Friday, September 28th, at a Retro Proviso Study Group meeting, Judy Schurke, the Director of the Department of Labor and Industries, stated that L & I agreed with the Wyman study that the Occupational Disease error led to $300 million in overpayments to Retro agencies. Combined with the $150 million “computer coding” error and the $75 million “45 month limitation” error, retro agencies were overpaid by at least $525 million dollars since 1992. However, Judy also announced in writing, that L & I would only seek re-imbursement for the past 3 years of Retro overpayments.
I believed, based on the following two laws, that tax payers should get back the entire amount of overpayments. Here are the two laws:
WAC 296-17-90402 requires that retro employers as a group and non-retro employers as a group fund the same portion of their total claim costs relative to their total premium charges. (If retro groups are not required to refund ALL of the over payments, then they will have paid a far lower proportion of premiums than non-retro groups which would be a violation of WAC 296-17-90402).
RCW 51.48.260 states: Liability of persons unintentionally obtaining erroneous payments.
Any person, firm, corporation, partnership, association, agency, institution, or other legal entity, but not including an industrially injured recipient of health services, that, without intent to violate this chapter, obtains payments under Title 51 RCW to which such person or entity is not entitled, shall be liable for: (1) Any excess payments received; and (2) interest on the amount of excess payments at the rate of one percent each month for the period from the date upon which payment was made to the date upon which repayment is made to the state.
(Since injured workers are the only group exempt from returning overpayments, Retro groups MUST refund all over-payments made during the past 15 years plus interest).
Therefore on Thursday, October 1st, I sent an email to 4 members of the Senate Commerce Committee (Senators Kohl-Wells, Franklin, Keiser and Kline) expressing my belief that the tax payers were entitled to get ALL of their $525 million dollars in overpayments back.
The following morning, October 2nd, at a Senate Commerce Committee hearing on the Retro program, Senator Keiser asked Judy Schurke why L & I was not seeking reimbursement of the full amount. Judy stated she had been given an informal Opinion by our State Attorney General, Rob McKenna that they could only go back three years to recover overpayments.
This is a quote from an article in the Olympian on February 11, 2009 in which Brad Shannon discusses this issue:
The (coding) overpayments came to about 10 percent of what should have been paid out, said Bob Malooly, assistant director of insurance services for L&I. "L&I says that in their legal analysis, they don't think the retro group has to repay that money" since 1994, said Tom Kwieciak, BIAW's program manager. But Kwieciak said that refunds are made in three yearly adjustments, so it is possible that overpayments since the 2005-06 fiscal year could be subject to adjustments… Judy Schurke, Director of L & I, said the agency is working with the state Attorney General's Office (to determine how far back they will be able to recover over-payments).
Thus, Judy blamed the whole problem on the Attorney General.
I still believed the Attorney General was wrong. So, after the Commerce Committee hearing, I went over to Representative Chase’s office and explained to her why I felt the Attorney General was wrong. Representative Chase agreed with me that there did not appear to be any time limit in either of the two laws I was relying on. She then immediately wrote an email to the Attorney General asking him to clarify why he felt there was a 3 year time limit on recovery of overpayments owed the State’s tax payers.
I next met with Senator Adam Kline (who is on the Senate Commerce Committee). I explained that there was no time limit in RCW 51.48.260. It clearly requires ALL overpayments to be paid back in full plus interest.
Senator Kline, who is an attorney, replied that the statute I relied on was not the “controlling” statute. He then explained that in all causes of action, there is a statute of limitations that is the controlling statute. Senator Kline explained that the statutes of limitation for various actions are found in RCW Chapter 4.16 and are generally limited to 3 years.
Senator Kline got out a gigantic book of State laws and flipped to RCW Chapter 4.16. He showed me lots of causes of actions and their limitations. Most were in fact 3 years, although some were 2 years and some were 6 years. But Senator Kline kept looking for a Section on recover of debts owed the State. He finally found it in Section 4.16.160.
Senator Kline got out a gigantic book of State laws and flipped to RCW Chapter 4.16. He showed me lots of causes of actions and their limitations. Most were in fact 3 years, although some were 2 years and some were 6 years. But Senator Kline kept looking for a Section on recover of debts owed the State. He finally found it in Section 4.16.160.
After reading it, Senator Kline said, “It looks like the Attorney General was wrong. There is no time limitation on recover of debts owed the State. “
Here is the actual text of RCW 4.16.160:
RCW 4.16.160 Application of limitations to actions by state, counties, municipalities.
The limitations prescribed in this chapter (RCW 4.16) shall apply to actions brought in the name or for the benefit of any county or other municipality or quasi-municipality of the state, in the same manner as to actions brought by private parties: PROVIDED, That, except as provided in RCW 4.16.310, (a statute which applies to defects in building construction) there shall be no limitation to actions brought in the name or for the benefit of the state, and no claim of right predicated upon the lapse of time shall ever be asserted against the state…
Senator Kline then immediately sent an email to the Attorney General citing RCW 4.16.160 and asking for a clarification of the Attorney General’s prior opinion as to why Retro overpayments beyond 3 years could not be recovered.
After finishing his email to the Attorney General, Senator Kline explained to me that the solution to the problem was not necessarily to pass a new law, but simply to insist that the Attorney General enforce our current laws. He pointed out that, when 12% interest is added on, the total owed is likely to be more than one billion dollars. He added, “Given the financial crisis our State budget is facing, we simply cannot afford to give away more than a billion dollars in undeserved overpayments.”
Senator Kline also encouraged me to meet with Senators Kohl-Wells, Franklin and Keiser as soon as possible to answer any questions they may have about this issue.
We next discussed how Retro agencies might be able to pay back all the over-payments.
I pointed out that Retro agencies were scheduled to receive another $100 million dollars in retro subsidies in 2010. I believed that, instead of sending this $100 million to retro agencies, it should be credited against the debt owed the State and returned to the Workers Comp Accident Fund. In addition, Retro agencies should be assessed an additional $100 million per year. Assuming $200 million per year in Retro subsidies and additional assessments were made, Retro agencies could pay back the entire amount with interest in about 10 years.
The net result would be that the Contingency Reserve would eventually be restored to more than one billion dollars without any increase in Workers Comp rates on any employers or workers. I pointed out that the proposed 8% rate increase, intended to generate $117 million, would not be needed if Retro agencies were required to pay back the money they owed. I also stated that it would be harmful to our economy to increase Workers Comp rates in the middle of a recession when the problem had been created by hundreds of millions of dollars in over-payments to Retro agencies and could be solved merely by requiring the return of the overpayments. I also pointed out that the BIAW was aware that they might need to pay back the State. As early as 2006, BIAW Board meeting minutes refer to building up a slush fund reserve of millions of dollars “in the event that the retro program ends.”
We next discussed the future of Retro programs. I pointed to several studies which have shown that Retro agencies do not save money or improve safety. Most concluded that Retro programs cost tax payers MORE than non-retro programs. I therefore believe that the Retro program should simply be ended. I also pointed out that employers already have a huge incentive to improve safety because of the “Experience Rating” system and that this system was far more effective than Retro in controlling costs.
Senator Kline said that he felt that at least some Retro groups might do some good in improving safety and reducing costs, but that the good apples were hidden by all the bad apples. He said it was unfortunate that L & I had made so many errors which placed the entire Retro program in danger. Thus, I believe Senator Kline supports reforming retro and fixing all of the problems rather than getting rid of Retro entirely.
We agreed that whatever the future holds for Retro, right now the most important thing is making sure the tax payers get their money back. Senator Kline assured me that he would personally hold the Attorney General’s feet to the fire and make sure that the Retro agencies paid back the entire amount of overpayments plus interest.
Thus, I believe our Attorney General made an error which could have cost tax payers over one billion dollars. Fortunately, thanks to the dedicated efforts of Senator Kline and Representative Chase, I also believe this error will eventually be corrected and the tax payers are going to get their money back. I’ll keep you posted.
Regards, David Spring
