Back to 2013 Issues



Other Budget Issues

Last Updated: 3/6/2013
Budget Issue: Workers' compensation reform: return-to-work program
Program: Department of Industrial Relations
Finding or Recommendation: Recommend that the Legislature clarify its intent for funding the return-to-work (RTW) program created in Chapter 363, Statutes of 2012 (SB 863, De León).
Further Detail


One component of the broader workers' compensation reforms in SB 863 is the establishment of a RTW program for injured workers with disproportionately low permanent disability benefits relative to their earnings loss. SB 863 provides an annual $120 million appropriation from the Workers' Compensation Administration Revolving Fund to the Department of Industrial Relations (DIR) to operate the program. SB 863 requires DIR to develop program eligibility requirements and benefit levels for the RTW program based upon studies conducted by the department.

Governor's Proposal

The 2013-14 Governor's budget includes budget bill language that would allow the administration, subject to Department of Finance approval and legislative notification, to increase funding for the RTW program to pay claims that exceeded the $120 million appropriation in SB 863. The 2013-14 Governor's budget also includes an additional $5 million (above the $120 million SB 863 appropriation) from the Workers' Compensation Administration Revolving Fund and 23 positions to implement the RTW program. Total proposed funding for the RTW program in the 2013-14 Governor's budget is $125 million.

LAO Analysis

The administration's proposed budget bill language would potentially broaden the scope of the RTW program beyond that intended by the Legislature and create a potentially larger funding obligation than was provided in SB 863. Until DIR adopts regulations establishing program eligibility and benefit levels, it is difficult to determine what level of funding would be necessary to fund eligible injured workers pursuant to DIR's program guidelines. The administration's proposed program model may conflict with the $120 million RTW program specified in SB 863. Instead of studying eligibility requirements and developing benefit levels that could be sustained by the funding provided in SB 863, the administration is requesting broader funding authority. Because the administration has not yet developed the eligibility requirements and benefit levels for the RTW program, we are unable to estimate the potential financial obligation, and the corresponding increase in workers' compensation employer assessments, for the RTW under the administration's proposal.

LAO Recommendation

We recommend that the Legislature clarify its intent in funding the RTW program created by SB 863. If the Legislature intended for a capped program allocation of $120 million annually, then we would recommend that the Legislature reject the administration's proposed budget bill language, and instruct the department to develop program eligibility and benefit levels consistent with the appropriation level provided in SB 863. Consistent with this action, we would also recommend that the Legislature reduce DIR's expenditure authority in the Workers' Compensation Administration Revolving Fund by $5 million in 2013-14 to reduce the RTW program's budget to the $120 million appropriation provided by SB 863.

Alternatively, if the Legislature did not intend for a $120 million annual cap on the RTW program, then the Legislature will need to evaluate whether it wants to cede some of its oversight during the annual budget process by allowing midyear budget augmentations, with more limited legislative review, as proposed by the Governor in his proposed budget bill language. Also, if the Legislature did not intend for a $120 million annual cap on the RTW program, then we would have no issues with the $5 million additional funding proposed in the 2013-14 budget for program operations.