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Government, Politics & Issues

In line with predictions, Second Injury Fund appears to be broke

This article first appeared in the St. Louis Becon, Oct. 1, 2009 - Missouri Attorney General Chris Koster just announced that his office is putting a hold on all new settlement payments out of Missouri’s Second Injury Fund, which covers workers with pre-existing disabilities or injuries who suffer an additional injury on the job.

Koster's announcement wasn't unexpected. Shortly before Christmas, then-state Labor Department director Todd Smith predicted that the Second Injury Fund program would run out of cash by last May or June.

At the time, Koster had said in an interview that he was aware of the Second Injury Fund's cash problems and would seek to address the matter soon after taking office in January.

The immediate issue now is that injured workers who had applied for help, and those who had just signed settlement deals, won't get any money.

Said Koster  in a statement Thursday:

"Our office, along with the state treasurer’s office, received notification Tuesday from the Missouri Department of Labor that the solvency of the Missouri Second Injury Fund is in question.

"It was represented to us that current fund revenues may be adequate to meet current obligations upon the fund until the end of the year. However, we were informed that new obligations upon the fund could potentially push the fund past solvency. Therefore, given information currently available, our office has determined it is in the best interests of existing claimants and the state that no new settlements be entered into until a greater understanding of the fund’s solvency is reached and until further consultations with executive and legislative leaders are completed,” he said.

The attorney general handles the legal aspects of the fund.

Missouri businesses provide money for the Second Injury Fund by paying a fee that equals 3 percent of their premiums paid for workers' compensation insurance. Payments to injured workers are capped at $60,000.

(In an attempt to ease the Fund's money crunch, Koster acted on his own in March to trim maximum payments to $40,000.)

Experts generally tie most of the Second Injury Fund's financial problems to the freeze on the 3 percentage cap that the Republican-controlled Legislature placed in 2005 on businesses' payments into the Second Injury Fund.

Before the cap, the fee percentages had fluctuated, rising as high at 4 percent when the fund needed more money.

The cap has had an effect. In 2006, for example, the Second Injury Fund received about $10.8 million less in business fees than it had collected in 2005, before the cap was imposed.

Two recent audits -– one by state Auditor Susan Montee in 2007 and the other by the accounting firm of PricewaterhouseCoopers -– cite the cap as the chief reason for the Second Injury Fund's money problems.

Last fiscal year, the problem had been that the Legislature also had set a cap for Second Injury Fund spending at about $63 million, while state Labor Department officials predicted the obligated payouts would total about $77 million. A supplemental was approved last session to boost the spending to $76 million, a department spokeswoman said today.

The state Labor Department spokeswoman said the Fund's spending cap for this fiscal year is $66 million.

Republican legislative leaders have balked at adding any more money to the fund, or lifting the cap on business payments, with some -- notably state Sen. Gary Nodler, R-Joplin, who headed the Appropriations Committee -- calling for reducing the maximum settlement payments to injured workers to $40,000.

The Second Injury Fund's beginnings hail back to World War II, when government was seeking to encourage businesses to hire veterans with permanent war injuries, disabilities, from their war years.

The Second Injury Fund was a key factor in the 1992 scandal that ended up sending then-Attorney General William L. Webster to prison. Federal investigators probed allegations that Webster, a Republican running for governor that year, was funneling the fund's private legal work to political allies.

Webster pleaded guilty to unrelated federal charges, but the controversy made the fund a household word. His GOP rival for governor that year, then-Secretary of State Roy Blunt, made headlines with a hard-hitting TV ad that used a carousel to illustrate how Webster was using the Second Injury Fund to help his campaign.

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