Workers' comp rate hike spike blamed on jobs

NJBIZ.com

High unemployment, medical costs drive 6.9 percent increase

By Ken Tarbous

January 2. 2012 3:00AM

The 6.9 percent average hike in the rates used to set workers’ compensation premiums, which took effect Jan. 1, has been driven by macroeconomic forces and tied to New Jersey’s escalating medical costs and lower overall payrolls, a result of the relatively high unemployment rate, according to experts.

Net premiums, the funding source for benefits, have dropped from $1.90 billion in 2008 to $1.64 billion in 2010, according to the New Jersey Compensation Rating and Inspection Bureau, more commonly know as CRIB, which collects data on workers’ compensation and is under the supervision of the state Department of Banking and Insurance.

“When you combine, at one time, an increase in claims, a decrease in premium (paid into the system per-employee by companies) and increasing medical costs, it’s likely to have upward pressure on rates, and that’s what you’re seeing,” said Frederick A. Huber, executive director of CRIB.

Rates, which are part of a formula used to compute individual companies’ premiums, are set for approximately 560 “classification codes” representing industries, according to CRIB. Approximately 80 percent of those employer class rates increased Jan. 1, with the two hardest-hit sectors being manufacturing and construction, which have seen a drop in payroll and the eventual payroll-driven premiums collected by insurance companies, Huber said.

The increase in rates should be a wake-up call that New Jersey’s system must evolve to offer employers more affordable options for coverage in the mandatory insurance program, according to John J. Sarno, president and general counsel of the Employers Association of New Jersey.

“Those alternatives might be private plans. They could be self-insured plans,” Sarno said. “The program’s on automatic pilot. It’s viewed as a tax, and there’s just not a lot of innovation.”

Sarno said New Jersey’s small businesses, which dominate the landscape, have fewer resources than larger employers to explore insurance cooperatives and other cost-saving options.

“There hasn’t been any new thinking about workers’ compensation in over a hundred years. There’s been no new business model in over a century,” Sarno said.

Workers’ comp is a state-mandated insurance program that provides medical care, wage replacement and disability benefits to employees who suffer job-related illness or injuries, and death benefits to dependents of workers who die as a result of their job.

Under the program, workers forgo the right to sue employers for damages or pain and suffering.

In addition to rising rates, the maximum weekly workers’ comp benefit for all injuries except permanent partial disabilities climbed to $810 for 2012, from 2011’s maximum weekly benefit of $792, according to CRIB.

Each year, CRIB makes rate recommendations to the Department of Banking and Insurance commissioner, who reviews and makes a final determination on the rates, which are used by all insurance carriers covering workers’ comp in the state.

For 2011, rates went up 3.9 percent on average, which came on the heels of two decreases in rates.

The premiums employers pay for workers’ comp insurance are calculated using the classification rate and each company’s payroll, safety record and the cost of its claims — known in the insurance industry as “experience modification,” which is similar to what a driving record is to auto insurance. Insurance carriers are able to compete with one another by adjusting their premiums and products using deductibles, dividend programs and other product features.

In 2010, New Jersey Manufacturers Insurance Co. had a 22.4 percent workers’ comp market share, or $365.9 million in premiums; followed by Hartford Insurance Group, with 11.5 percent market share, or $187.5 million in premiums; followed by Liberty Mutual Insurance Cos., with 9.7 percent market share, or $158.6 million in premiums.

For employers’ part, they can help control workers’ comp costs by improving their safety records, according to Patrick Breslin, director of communications at New Jersey Manufacturers.

“The most direct way to control your workers’ comp costs is to prevent the accidents from happening in the first place,” Breslin said.

“The best reinforcement for safety practices is a low accident rate, which directly translates to lower premiums for that business.”

 

Giving back during tough economic times

NJBIZ.com

Foundations find endowments shrink as nonprofit demand rises

By Ken Tarbous

December 19. 2011 3:00AM

Foundations play an important role in supporting the state's nonprofit organizations that combat hunger and domestic abuse, or promote education, literacy or technology, to name a few of the sector's core missions.

But as local nonprofits have suffered declines in donations from individuals since the onset of the most recent recession, economic conditions and increased demand from local nonprofits have put pressure on these grant-making foundations to use their capital more efficiently and effectively.

"The challenging part is for us to really rethink how we've done funding and to allocate our limited resources around [our] priorities," said Vaughn L. McKoy, president of PSEG Foundation, which focuses on funding nonprofits and programs on the environment, community and economic development, and education. He said the foundation can't always send a check, "but there are other services that we can provide to these organization in terms of capacity building, accounting, strategy, legal, finance or human resources. A lot of these organizations don't really need cash; they need expertise in other areas."

Foundations — whether they are sponsored by their corporate namesakes with funding, or have endowments or assets of their own that stand separate from corporations — have faced shrinking endowments and increased demand from local nonprofits.

Law requires foundations to give away at least 5 percent of their assets each year, on average. In 2008, foundations suffered a 17 percent drop in the value of their assets, to $564.9 billion from $682.2 billion in 2007, but recovered by 4.7 percent to $621.7 billion in 2010, according to the New York-based Foundation Center, which gathers data on philanthropy.

In 2010, giving by U.S. grant-making foundations was $45.7 billion, close to 2009 levels. But from 2008 to 2009, giving decreased by 2.1 percent, from $46.8 billion to $45.8 billion, according to the Foundation Center.

PSEG Foundation, which is funded by its corporate sponsor, PSEG, has been able to increase its funding of nonprofits to meet that higher demand for services at the local level. In 2006, the donor organization gave more than $5 million and funding increased to $7.3 million by 2010.
But like many of the nation's 75,000-plus donor foundations, The Provident Bank Foundation, which received one-time funding connected to The Provident Bank's IPO in 2003, has seen the value of its assets fluctuate over the past several years, from $32.2 million in 2006 down to $16.6 million in 2009, according to IRS filings. The foundation has had to temper its giving, in what are desperate times for some local nonprofits, with the need to preserve its assets to maintain itself as a going concern, said Kendall Ann Warsaw, executive director of The Provident Bank Foundation, which is based in Jersey City and supports education, health and wellness, culture and arts, and other programs.

"We went well over the 5 percent that we are required by law [to give away], because there is just such a need, but when you balance that back out with making sure we're doing the right thing for the longevity of the foundation, you have to start cutting back," Warsaw said. "We have to take drastic measures to ensure the integrity of the foundation because nobody else is."

OceanFirst Foundation, in Toms River, is one of the tens of thousands of foundations nationwide that have seen a decrease in its contributions, gifts and grants paid. OceanFirst's giving has fallen from more than $2.6 million in 2006 to just above $1 million in 2010, according to IRS filings.

"Projects that we may have done a few years ago when our resources were a little bit greater, we've had to take a second look at some things, and we've prioritized things like hunger programs, emergency housing, the basic necessities of life and the organizations that we're working with," said Katherine Durante, executive director of Toms River-based OceanFirst Foundation, which was formed and funded with its own freestanding endowment by OceanFirst Bank during the corporation's IPO in 1996. "Where it's been necessary, where there are projects and needs that we want to support, we have sold some stock to ensure that we had the funding that we needed to do those things. It's been a little more challenging, but you can still give in a meaningful way to a lot of charities that are really struggling."

 

Credit unions embrace chance to compete for deposits

NJBIZ.com

By Ken Tarbous

November 21. 2011 3:00AM 

Across the state, credit unions — the not-for-profit cooperatives that provide banking services to businesses and consumers — are preparing to take advantage of their newfound ability to compete with banks and accept some of the $15 billion in deposits from municipalities, school boards and other government bodies.

"We're going to reach out to the local entities that we currently have relationships with. We're going to target more of a niche approach, and then look to branch out to other entities where we have branches in our markets," said Andrew L. Jaeger, president and CEO of the Credit Union of New Jersey, based in Ewing.

Jaeger said he already has heard from one entity, which he declined to name, interested in deposit accounts.

Earlier this year, Gov. Chris Christie signed into law changes to the state's Governmental Unit Depository Protection Act of 1970, commonly known as GUDPA, to allow New Jersey's approximately 1,500 local governmental entities — from libraries, to community colleges, to sewer authorities — to deposit funds with credit unions. But the rules are still being written by the state Department of Banking and Insurance in a process that's expected to last until the second quarter of 2012.

Since credit union membership is restricted to defined groups — employees, communities or institutions — the not-for-profits will be permitted to accept those deposits from only a limited number of government entities, depending on each financial institution's individual bylaws. Once approved by the state, credit unions plan to start the push to market their higher interest rates and lower fees to entities.

And since it's a new line of business for credit unions, Jaeger said, his organization and others in the Garden State are still in the product development phase as they await the final regulations on requirements they need to meet to qualify as public depositories.

At the home base of the state's largest credit union, Affinity Federal Credit Union, in the Basking Ridge section of Bernards, executives say they've long been hearing from municipalities seeking the opportunity to use the organization's services. But Donna LoStocco, vice president of member experience at Affinity, said once the state completes the rule-making process, they will court new business.

"I'd really like to contact, certainly, the entities that have contacted us first and showed interest, and let them know we're ready to have conversations," LoStocco said. "There's different types of municipal accounts, and I need to understand which types of accounts they have in mind for the credit union, and see if that makes sense."

Banks, for their part, are not content with sitting back and letting credit unions take away customers and market share.

"We're pretty confident … that our banks are going to continue to fare pretty well in that regard," said John E. McWeeney Jr., president and CEO of the New Jersey Bankers Association. "Many of our banks have such long-standing relationships with these clients over the years, and we do provide a high level of service."

Banks' willingness and ability to invest in bonds issued by local governments and the suites of banking services they offer give banks an edge on the competitive marketplace, bankers say.

Chris Martin, chairman, president and CEO of The Provident Bank, which has 81 branches across the state, said his bank's long list of loyal municipal clients avail themselves of services such as cash management accounts, in addition to deposits. In many instances, banks discount product bundles that would cost local governing bodies more if the packages were broken up and money moved to another financial institution.

"We try to cultivate a relationship with the municipality and try to make it all encompassing, so it's not just the municipality looking for the best rate for the short period of time," Martin said. "We help create a relationship that is mutually profitable, as opposed to the one-trick pony of just getting a rate for a two-month period."

As for the financial professionals in local governments who take care of taxpayer money, they're watching to see how credit unions — which have long touted their slightly higher interest rates and lower fees than banks — might fit into the picture.

But one hurdle credit unions will have to overcome is a common perception among people who serve on government bodies, as well as consumers, that the cooperative not-for-profit organizations are just for vacation clubs, said Joseph P. Monzo, chief financial officer for South Brunswick Township and other smaller municipalities.

"They're a bank," said Monzo, who also serves on the New Jersey League of Municipalities' finance and taxation subcommittee. "If I was approached by a credit union, I would look hard at what services they can offer. If they can offer a competitive rate, I'd have no problem moving my money over, because I think — I hope — I'd get better customer service from them than from a larger bank. Many towns are becoming disenchanted with the banking services they're getting from the bigger banks. They're cutting services, and they're cutting rates at the same time."

In recent years, counties have felt the crunch of the cap on tax increases and lower revenues from the realty transfer fee because of a depressed real estate market during the recession and drawn-out recovery. John Donnadio, executive director of the New Jersey Association of Counties, an advocacy group based in Trenton, hasn't heard much feedback from membership, but he said counties will consider the feasibility of any mechanism or resource made available to local governments.

"In theory, it could provide additional competition and better investment vehicles for county government. It's another resource where they (counties) can potentially save a couple of dollars, or make a couple extra dollars here or there," Donnadio said. "At the county level, we've got some sophisticated administrators and finance officers that could really run Fortune 500 companies, and I can certainly assure they will take a hard look at this."

 

Raising questions over the future of affordable housing

NJBIZ.com 

By Ken Tarbous

August 29. 2011 3:00AM 

New Jersey's affordable-housing problem has lingered for decades, and the Chris Christie administration's plan to abolish the Council on Affordable Housing, which would transfer its responsibility to the Department of Community Affairs, raises questions and concerns about just how the affordable-housing landscape — and how it's governed — will look in the years to come.
"We've been in a box for quarter century — an administrative-driven box — and when people dare to venture outside that box, it's attacked," said Michael Cerra, senior legislative analyst with the New Jersey State League of Municipalities. "I think everyone needs to realize that we need to start over. It's a mindset."

Christie's move is designed to streamline the process, and more effectively and efficiently enable the state to deal with affordable housing, the Fair Housing Act and the Mount Laurel doctrine — the constitutional principle that municipalities must eliminate exclusionary zoning so affordable housing for low-income groups is available. The takeover by DCA makes sense, in part, because the department already works with the New Jersey Housing and Mortgage Finance Agency and other housing initiatives and programs, supporters say.

In an e-mail, DCA Commissioner Lori Grifa said the change will be beneficial "by eliminating much of the excessive bureaucratic process created by the Council on Affordable Housing." Yet, no long-term solution appears in sight to address the state's need for affordable homes.

That doesn't mean the high-stakes players don't have wish lists of their own, though.
The League of Municipalities, a member group of local governments throughout the state, said it wants a cure focusing on four key areas.

"Any legislation would need to lay out reasonable and achievable obligations — whether that be a number, or a formula or a means to determine what the obligation is — it can't be a number that a town will never reach," Cerra said. "Second, and coupled with that, it should recognize work that has already been done by the municipalities, units that are deed restricted now should advance."

Cerra also emphasized the need for adequate funding sources to avoid what would essentially be unfunded mandates, and for the inclusion of legal protection from litigation for compliant towns with affordable housing that meet the promulgated standards.

But for housing advocate Kevin Walsh, of Fair Share Housing Center, local governments themselves are a big part of the problem. He said the law must rein in municipalities, because too often, local communities make unreasonable decisions that discourage private developments and interfere with economic growth.

"When left to their own devices, too many towns will make decisions that exclude workers, result in long commutes, and overall make our state less economically competitive and more racially and economically segregated," Walsh said. "There's a lot of towns in this state, many of which have train stations, that are refusing to provide the zoning to tap the market — and that's completely unreasonable in many instances, and it's why you need a check on municipal discretion."

Walsh would like to see a solution for the state's affordable-housing problem that encourages redevelopment and ensures that people can live close to where they work.

But for the commercial and residential builders in the state that put up those developments, new construction carries with it affordable-housing obligations, which can constrict development.

"The most effective means to do it is to simply allow the market to take care of it, not to necessarily become obsessed with fair share numbers and a whole bunch of rules and regulations," said attorney Thomas F. Carroll III, of Hill, Wallack LLP, in Princeton. "Builders would build where there's a market. It would be a self-implemented type of thing."

Carroll, also land-use counsel for the trade group New Jersey Builders Association, said the Garden State could consider a model along the lines of that provided by Massachusetts, where municipalities are obligated to provide a percentage, to be determined, of housing stock that would be multifamily or truly affordable housing, price-wise.

Another builders trade group, the New Jersey chapter of NAIOP, which represents developers and owners of real estate, wants to de-link its industry from the concept of growth share and eliminate the 2.5 percent "COAH fee" on commercial builders, said Michael McGuinness, CEO of the New Jersey chapter.

Under growth share, municipalities are obligated to build affordable-housing units when commercial developments that createjobs are added, and the commercial developers are required to contribute funds toward future affordable-housing units or make other commitments. That fund is known as the COAH fee, which was implemented in 2008, but later suspended through July 1, 2010.

On Aug. 24, Acting-Gov. Kim Guadagno signed into law a bill extending the moratorium on the fee until July 1, 2013. Developers who paid the fee from 2010 until now will have the ability to "clawback" any funds not spent.

"Any type of funding mechanism for something as important as affordable housing should not be dependent on one sector of the economy, especially a sector that isn't doing well, is not healthy." McGuinness said. "Plus, it's a bit hypocritical. These towns that are charging the fees — they're not building affordable-housing units. There's hundreds of millions of dollars sitting in these local coffers of these towns that has never been used for affordable housing."

According to the DCA, 293 towns have more than $266 million in affordable-housing trust funds.

McGuinness suggested alternative sources of funding should be considered, including using a portion of the realty transfer fee, which is collected when properties are sold — a more stable and equitable way to fund affordable housing, especially in harsh economic times, he said.

State Sen. Raymond J. Lesniak (D-Union) who sponsored the affordable-housing legislation that proposed new guidelines for providing low- and moderate-income housing and was conditionally vetoed by the governor, was unavailable for comment.