SACRAMENTO — At a time when the state is awash in debt, an emergency fund that covers workers' compensation claims is pushing to borrow $1.5 billion to avoid bankruptcy and keep payments flowing to injured workers.
The California Insurance Guarantee Assn. estimated in May that it would need a half-a-billion-dollar bond issue to bail out its workers' compensation fund. Now, the association -- a quasi-public agency not directly backed by the state -- says it needs three times that amount to keep the fund afloat.
State officials, who would need to approve any borrowing, say they are troubled that the proposed bond issue has swelled so quickly and suggest their support is no sure thing.
The fund's role is to step in and pay claims that are due when private workers' comp insurers fail. It is backed by a 2% fee tacked onto workers' comp policies. At present, the association is paying $90 million a month to some 75,000 injured workers -- a pace that is proving ruinous.
"Their liabilities exceed their assets. That's called bankruptcy," said state Insurance Commissioner John Garamendi.
Though the public's focus in recent months has been on the Legislature's inability to pass a budget that closes a $38-billion shortfall, the association's difficulties are another sign of financial trouble popping up in more obscure corners of state government.
The state's unemployment insurance program is going broke, depleted by a flood of jobless claims.
In a sagging economy, with state lawmakers still struggling to pass a budget, some officials are skeptical about the association's plan to take on debt -- even though the bonds would not be backed by taxpayer money.
The state is so reliant on so many other kinds of borrowing that it is now paying its bills entirely through loans, a step that avoids the politically difficult choice of raising taxes or cutting spending to balance the books.
Any bond issue must be approved by both Garamendi and the Legislature. The Senate Insurance Committee is expected to take up the matter in the coming days.
"This borrowing has to be considered with other borrowing and with tough decisions facing the Legislature," said Garamendi, whose office appoints the bulk of the association's governing board. "I don't yet have the right information that this is the proper amount," he said. "Nor am I prepared to say this is the right course."
