Bronxville Mayor Marvin: The Fallacy of New York's 2 Percent Tax Cap

In this year’s Village budget, our healthcare and pension costs had only single digit increases for the first time in many a year, rather it was our financial responsibilities to the New York State Workmen’s Compensation program that increased 12% to 14% over just last year.  This is yet another frustrating example of the fallacy of the 2% tax cap.   Albany cannot send unfunded mandates of this magnitude, resulting in major tax increases, and then try to blame local governments for mismanagement when they are forced to go over the cap to pay State bills.

New York State was one of the first states to pass a Workmen’s Compensation Law in 1914 as a direct result of the 1911 Triangle Shirtwaist Factory fire in Greenwich Village where 146 immigrant women lost their lives and received no death benefits and survivors received no medical benefits or lost wage coverage.

The law was a compromise between employer and employee interests.   As part of the compromise, employees gave up their right to sue their employers for negligence resulting in an injury.  In return, employees would receive payment from a worker’s compensation fund without regard to fault as long as the accident or injury was related to work.  The goal was to foster workplace harmony by resolving disputes over injuries without litigation or recrimination.  To receive benefits, an employee must prove that there was an accident in the course of employment, the employer was notified and a claim was filed within two years of the accident.  The amount of compensation an injured employee may receive while out of work depends upon two things – one’s average weekly wages and degree of disability. 

An injured employee receives two-thirds of his average weekly salary up to a certain cap.   The calibration of disability is a much more inexact calculation.   As example, an account clerk may be able to continue working even with a high degree of disability while a construction worker who is judged 50% disabled will rarely be hired back.  Additionally, medical costs are covered as well as rehabilitation, retraining and death benefits in many cases.

A system of great promise, it is now a $5.5 billion State run bureaucracy, the second largest in the country, known for its slow pace and adversarial nature.

Of fifteen states surveyed, New York was the slowest to pay workers their first disability check.   It often takes months to get before a judge to adjudicate injuries, a time period during which many a worker may not receive medical care coverage or lost wages.

The State owes Governor Spitzer credit for trying to reform a system that had the dubious distinction of being among the most expensive for businesses and the stingiest to workers.

However, the admirable wage increases proposed by Governor Spitzer were enacted in the form of laws while the bureaucratic reforms were done as directives which did not carry the same weight.  Net net, New York went from being the 10th most costly program to employers in the country to the 5th most costly today.

Even with the payout increases, New York State employees received less than half the limit of their peers in Iowa, though double those of workers in Mississippi who are last in average payouts.

Some of the reasons for New York’s high employer costs are the high level of injuries (over 140,000 new cases filed just last year), one of the most litigious processes which translates into dollars, and a weak fraud detection system.

Each community’s costs are calculated by multiplying a job classification number, which is based on the inherent danger in that job, and the average yearly number of claims in that category times a percentage of salary.  Communities have multiple classifications and computations.  

Municipalities are further charged an “assessments” premium in New York which helps support a “fund for secondary illnesses”.  Black lung is a prime example, as it appears long after a claim is settled.

Added to this is a floating calculation based on the level of claims and payouts that have occurred State-wide in each job category for the previous five years.

Bronxville then receives a bonus 20% safety discount because all of our staff participate in the suggested yearly training.

Several states, led by Texas and Oklahoma, are proactive in instituting legislation requiring insurers to develop safety programs for categories of work deemed extra hazardous.  The theory being that preventing a workplace accident and illnesses is the most effective way to reduce workmen’s compensation costs.  In Oklahoma, the prevention program resulted in an 18% drop in work time lost due to injuries, and in Texas, accidents themselves were cut by 72% at the companies that instituted a hazard prevention program.  In contrast, the number of accidents in New York are growing, not shrinking.

And as is often the norm, Commissioners of the Workmen’s Compensation Board are not trained professionals, rather political appointees of the Governor.   Recent Commissioners have been various - a close friend of Libby Pataki, union officials, a brother of an upstate Democratic Assemblyman and well as the wife of a downstate Republican State Senator.

Again taxpayers should ignore the rhetoric and smoke and mirrors about local governments being the source of tax increases, when in fact, it all starts in Albany.