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Deal on Stress Claims May End Budget Impasse


SACRAMENTO — In a move expected to break the state's budget logjam and clear the way for higher taxes on the wealthy, Gov. Pete Wilson and legislative leaders reached final agreement Tuesday on a scaled-back proposal limiting the right of workers to collect disability payments for stress suffered on the job.

Passage of a workers' compensation bill was considered crucial to winning enough Republican votes for an additional $2.3 billion in taxes needed to balance the state budget. Wilson said through his aides that the legislation was sufficient to meet his demand that employers be granted some relief from ever-increasing workers' compensation insurance premiums. The bill would sharply limit the right of short-tenure workers to be compensated for stress, although it falls far short of what Wilson and some Republicans initially demanded.

The signal having been given by the governor, the Assembly promptly took a preliminary vote on legislation to raise taxes on the state's highest earners--the last major piece of Wilson's plan to bridge the state's $14.3-billion budget gap. The tax bill received 50 votes in its favor--four short of passage--but was expected to win approval once the workers' compensation measure cleared the Senate.

"The governor's deal on workers' compensation is the best deal that he's going to get," said Assemblyman Charles W. Quackenbush (R-Saratoga) after voting for the income tax bill. "The governor is asking us (Republicans) to help him bridge the rest of the gap, so we are going to help him out."

Together, the Senate and Assembly actions were expected to spur the governor to sign the $56.4-billion budget originally sent to him by the Legislature nearly a month ago, resolving the problem that has preoccupied the Wilson Administration since the governor took office in January. Wilson faced a midnight deadline to sign or veto the spending plan or return it to the Legislature.

Already enacted are more than $5 billion in new taxes, including a 1 1/4-cent increase in the sales tax that took effect Monday. Also included in the overall budget agreement was legislation to cut welfare benefits by 4.4% and suspend for five years automatic cost-of-living increases for recipients of welfare and other social services.

Even with these agreements, Wilson, backed by Assembly Republicans, engaged in a lengthy standoff with Democrats over the issue of workers' compensation. The governor said he would not sign the budget for the fiscal year that began July 1 without major changes in the law governing stress benefits. Democrats refused to give the governor what he wanted.

But as state workers began to go without their paychecks and the financial houses considered lowering California's bond rating, Wilson changed his tack, scaling back his proposal.

He had insisted on a measure requiring workers who seek disability benefits to prove that at least 50% of their stress was caused by the job. The current threshold is 10%. He also wanted to prohibit compensation for stress that arises out of a firing, layoff or other legitimate personnel action, including discipline, transfers and evaluations.

Assembly Democrats had agreed to require workers to prove that at least 30% of their stress came from the workplace. They also consented to a provision denying benefits for stress caused by a layoff or firing. But they threw in a new element, proposing to repeal a decades-old law that inhibits price competition among workers' compensation insurers and guarantees that about one-third of the premiums goes to pay for overhead costs.

That proposal drove a wedge between employers, who were seeking lower premiums, and insurers, who said they would oppose any workers' compensation measure that repealed the so-called minimum rate law. Insurers lobbied heavily against the proposal and encouraged employers and organized labor to develop a new compromise that did not include it.

The compromise, embraced by Wilson, leaves untouched the stress provisions over which the governor and the Assembly Democrats had been struggling. Instead, the bill denies workers the right to collect stress benefits in their first six months on the job unless their stress is caused by a "sudden and extraordinary" employment condition. About 12% to 15% of stress claims are filed by workers with less than six months on the job, experts said Tuesday.

The bill also extends the life of a commission that is studying the repeal of the minimum rate law as a way to inject more competition into the marketplace.

The restriction on stress claims is expected to save employers about $60 million a year, less than 1% of the $10 billion workers' compensation system. Wilson's earlier proposal, had it been enacted, was expected to save business about $220 million. One big business group, an association of firms that insure themselves for workers' compensation, said the deal was too weak to be praiseworthy.

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