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About 15 years ago,the District was wrestling with a pair of problems related to its workers’ compensation program.
The funds established to run the program and to pay for injured workers’ benefits were found by the D.C. Inspector General to be vulnerable, “because they have not received adequate audit attention in the past.”
And the city’s overall administrative hearings system, which included injured workers’ claims, suffered from “lengthy delays, inappropriate communications with hearing officers, and unqualified hearing officers that lack impartiality from their employer agencies,” according to officials who testified before the D.C. Council in 1998.
So to try to make the system more efficient and improve fiscal management, the Council that same year passed the Workers Compensation Act, which, among other things, called for an assessment on employers at the beginning of each year so the District “will have the funds to fully staff” the workers’ comp hearings division.
Around the same time, the city responded to a 1999 report by the nonpartisan Council for Court Excellence by creating the Office of Administrative Hearings, a centralized, independent agency for hearings across various District agencies. The idea was that citizens and businesses caught up in fire code violations and unemployment benefits claims, to name a couple, should deal with “a more professional, detached cadre of hearing officers” who heard cases in a “high quality system that is fair, efficient, and impartial.”
The “Central Panel,” as it became known, was to include the hearings division of the workers’ comp program, which is based in the Department of Employment Services, by 2004. Labor lawyers opposed that, however, because in most states, workers’ comp is run by a dedicated agency, with its own structure, chain of command, and funding.
But here in D.C., workers’ comp never became an independent agency, either. As a legacy of the federal Longshore and Harbor Workers Compensation Act, the program has remained lodged in DOES to mimic the federal system under the Department of Labor.
Years went by, and with the assessments on employers rising each year, the DOES bureaucracy got into a habit of hauling in more money than it was spending to staff and run the program. Despite the extra funding, administrative law judges still got stuck with lower salaries than in the central panel, internal case management systems fell out of date, and a sense of dysfunction crept in.
These days, with as many as 900 injured workers’ claims coming in each year, the program is a mess. Stakeholders, judges, and lawyers familiar with the system say that it suffers from a lack of enforceable standards, failure to allocate adequate resources, and shoddy oversight.
The picture that practitioners and participants, both on the side of workers and employers, describe is grim: lack of interest and expertise by directors at DOES; policy drift, neglect, conflict, and lack of accountability; lack of institutional discipline; delays in issuing decisions; case backlogs; unnecessary litigation and uncertainty of the law; and an inability to attract and keep quality judges—particularly chief judges.
In February, Washington City Paper exposed a judge who had been disbarred 16 years ago yet continued to issue hundreds of workers comp rulings without a license to practice law. The D.C. Court of Appeals has ordered a judicial review panel at the agency to decide whether employees affected by those rulings are entitled to new hearings, which could wreak additional havoc.
Since that time, three judges have left the panel and haven’t been replaced. Just last week, the chief judge of the workers’ comp panel, after only four months on the job, announced that he wouldn’t be sticking around, either.
On top of all of that, a six-month investigation by City Paper also found that District officials had been diverting millions of dollars in unspent employers’ assessments, which by law are supposed to be reserved for workers’ comp, into the general budget instead. That’s not being done anymore, officials say, but figuring out how long it went on and at what cost isn’t easy—because the agency hasn’t completed any financial audits since 2007.
The problems at DOES that city officials were scrambling to address in the late 1990s, in other words, never went away, and they may have gotten worse.
The workers’ comp program is set up to cover specific economic loss resulting from injuries suffered by workers while performing their jobs. Slip and falls, staph infections, or lower back injuries can lead to medical costs, rehabilitation costs, and long-term disability benefits. To avoid being sued by injured employees, employers finance the workers comp program to administer these costs. This requires payment into two funds. The “Special Fund” provides benefits in cases of uninsured employers or when a job-related injury aggravates a pre-existing disability. The “Administration Fund” covers the costs of running the program.
The specific amounts the program charges vary. In 2010, employers were assessed a pro rata share of the program’s $20 million administrative cost based on size of their company and the number of claims from the previous year. For the special fund, employers were assessed a proportion of their paid losses for the previous year. The law requires the mayor to hold those funds in a trust that pays only for the workers’ comp program. But because the total amounts collected in any given year exceeded the program’s costs and payouts, a surplus pot of money started accumulating. In 2011, for instance, DOES collected $24 million for the administration fund, according to figures provided in response to a Freedom of Information Act request, but spent just $15 million.
Eventually, D.C. officials simply couldn’t resist dipping into that pot. Rather than putting the surplus funds back into the program, they found other uses for it. Such below-the-radar money moving by the Office of the Chief Financial Officer, which oversees all transfers of funds, didn’t go entirely unnoticed: One employer discovered the diversion of surplus funds in 2010, raised a legal challenge, and collected a quiet $1.9 million settlement.
Exactly when the practice began isn’t clear. But by 2003, judges at the Administrative Hearing Division, the first line adjudicators of workers’ comp claims, began hearing from DOES employees close to the process about significant amounts of money being used to fill full-time positions that had nothing to do with workers’ comp.
This went on for years, according to multiple judges and former DOES managers interviewed by City Paper, and became an open secret that no one seemed inclined to challenge. By 2009, however, the diversions began to raise eyebrows.
An internal DOES memo obtained by City Paper titled “Meeting with the Director” and dated July 21, 2009, states: “Mr. Koroma announced that the City will be taking excess workers compensation money from our budget. According to Mr. Koroma, the City will take $15.5 million this year … More to come on this I’m sure.”
“Mr. Koroma” refers to Ibrahim Koroma, the DOES finance officer at the time, who reported to OCFO. Contacted by City Paper, Koroma confirmed the funds diversion but declined to comment further.
Also in 2009, a number of DOES managers expressed concerns to then-DOES Director Joseph Walsh at a senior management meeting. According to E. Cooper Brown, then the chief judge of the panel that reviews workers’ comp rulings, Walsh said the decision to transfer the funds had come from the OCFO, and that the Office of the Attorney General had advised that the transfer was legally permissible. Brown says he subsequently learned from a DOES official close to the transfers that additional diversions of excess workers comp funds went into the city’s general fund in 2010 and 2011.
Brown states that in May 2011, after Mayor Vince Gray was elected, he met with Victor Hopkins, deputy mayor for Planning and Economic Development, and Lisa Mallory, who was then the director of DOES. “I shared with the two of them my concerns about the Trust Fund transfers,” Brown writes. “I also [told] them I had recently been informed that over the past several years [trust funds] had also been used for purposes having nothing to do with the workers compensation program, including the payment of salaries of non-program government personnel. Mr. Hopkins and Ms. Mallory indicated that they were aware of these matters, and assured me that corrective action was being initiated.”
In 2012, I reported in the Washington Times that Gray had declared such actions “inappropriate” and pledged to discontinue the practice. Then-D.C. Council Chair Kwame Brown accused Gray’s budget director, Eric Goulet, of “hiding” the funds, my story reported, and Goulet characterized the matter as a “drafting error.” The OCFO said the mayor and the Council in previous years had approved transfers of $13.4 million, and said that it was restoring the money to the workers’ comp fund via legislative action. The OCFO has never responded to questions about why it was restoring funds that had been approved for transfer in the first place or why it only restored that specific amount.
In an email, Acting DOES Director Thomas Luparello explains that diversions of more than $24 million in 2011 predate his tenure in the District government. “DOES has no knowledge of how the funds were spent,” Luparello writes. “Monies were restored to the [funds] during subsequent years and credits were granted to the stakeholders after reconciliations were completed. All employers impacted by the statutorily authorized removal have been made whole, either by direct transfer of funds or administrative credits.”
Neither Luparello nor the OCFO—nor anyone else for that matter—has ever spoken to the amounts detailed in the 2009 memo, or to the additional transfers and the hiring of non–workers comp employees described by Brown in his meeting with Gray administration officials. In fact, depending on how one inquires, and to whom, the amounts of the transfers appear to be all over the map.
Letting the workers’ comp program slide into disarray would be bad enough. But how did it manage to happen while the program was building up a steady surplus?
Since 2000, according to city data obtained through FOIA requests, the two funds combined have raked in more than $280 million, while actual expenditures total just $220 million. (Total expenditures for 2014 aren’t available yet.) Even as excess funds piled up each year, employers never saw their assessment rates reduced. The District just kept collecting money according to the same rate formulas.
Attempts to get an independent look at the city’s history of fiscal management of its workers’ comp funds have been futile. In response to FOIA requests, DOES has stated that it has no documents that pertain to “accounting entries/correspondence or budgetary requests/approvals for the transfer or direction of monies from the Administration or Special Funds to programs not subject to the [D.C. Code].”
Aside from the 2011 diversions disclosed by Luparello, DOES did disclose that it hasn’t completed a program audit since 2007, and that due to the city’s financial retention policy, audits from prior years may not be available. “While there was an audit conducted in 2008, the report was not finalized,” writes DOES General Counsel Tonya Sapp. “DOES is in the process of conducting audits for years 2009, 2010, 2011, and 2012.”
Neither Sapp nor anyone else in city government has responded to questions about why the 2008 audit was never finalized, or why the other audits weren’t done.
Meanwhile, OCFO responded to a series of FOIA requests with bits and pieces of information that are difficult to reconcile with various other figures. The office has denied any illegality or improper use of funds, and insists it has acted with legislative authority. Charts obtained via FOIA show $27 million was transferred from the workers’ comp funds from 2009 through 2011. Those funds went to a transitional employment program and to help balance the 2011 budget, according to OCFO, which has refused to address the amounts detailed in the 2009 internal DOES memo or to clarify the differing amounts it confirmed in 2012.
“I don’t know, I haven’t looked into it,” OCFO spokesman David Umansky says when I ask for clarification. “Talk to the mayor and the city council. If it’s question about policy, talk to them. There’s no point in going around and around.” Then he abruptly hung up.
The mayor’s spokesman, Pedro Ribeiro, says Gray stopped the transfers, but he’s not sure what they were used for before then. “We found out about it, the [D.C. Attorney General] said it was illegal, so we stopped it and put the money back,” he says. “At the end of the year it was swept into the [general fund] and we don’t know what it was used for. It could’ve been for anything.” He referred further questions to OCFO.
The Office of the Attorney General wouldn’t comment on advice it provides to the mayor’s office. But in 2010, city lawyers were dragged into the matter in a way that suggests the money transfers weren’t kosher.
Documents obtained through FOIA refer to “serious” issues raised by the Washington Metropolitan Area Transit Authority near the end of former Mayor Adrian Fenty’s administration, according to a Dec. 14, 2010, letter to WMATA General Counsel Carol O’Keefe from then-Attorney General Peter Nickles, who later handed the matter off to Gray’s incoming administration.
Nickles was responding to concerns raised the previous month by O’Keefe and Metro’s then-Deputy General Counsel Mark F. Sullivan regarding the “transfer of the Special and [Administration] Funds.” O’Keefe pointed out that during a meeting in October of that year, an assistant attorney general stated that the 2010 transfer was the “first, and, only occasion that the Funds were transferred to the District’s General Fund.” (According to data disclosed by the OCFO in response to a FOIA request, though, the office also transferred workers’ comp funds to the general fund in 2009 for a transitional employment program—and again in 2011 to help with the 2011 budget.)
The letter characterizes the transfer as an “impermissible tax,” and seeks an explanation of assessment increases “to replace the monies taken from the Funds.”
In August 2011, the District and WMATA settled the matter for $1.9 million, according to documents obtained by City Paper, to be reimbursed through future rate credits. The agreement states that after conducting an investigation of WMATA’s concerns, the District determined that “various monetary amounts” were subtracted from the administration fund “for use in other employment-related programs” through budget legislation in 2009, 2010, and 2011. The District conceded no wrongdoing and said the settlement was an acknowledgement of WMATA’s “unique status” as a regional transportation authority.
The Attorney General’s Office declined to comment on the matter. In an email, WMATA spokesperson Carolyn Laurin says the settlement was a “reconciliation to resolve an overcharge of WMATA for prior years.” A DOES spokesman says there was no violation of the law.
The settlement documents say nothing about an “overcharge.” Officials wouldn’t comment further, and have never said whether WMATA was, in fact, the only employer “overcharged”—or if not, why other employers didn’t get refunds, too.
Ed Lazere, executive director of the D.C. Fiscal Policy Institute, says movement of special funds isn’t illegal or uncommon, even if it’s not “best practices.” He knows little about the workers’ comp program, he says, but notes that questions about what to do with surpluses in such funds point up the problem of having too many of them. “When taxing businesses for a system designed to benefit employees, there is an expectation that the tax is set at a reasonable rate to meet the needs of the program—assuming the program is running well,” he says. “A reasonable solution would be to reduce assessments or spend it to improve the program.”
Asked if the lack of audits comports with “best practices,” Lazere replies, “No, it’s important for any government to manage its money well.”
Jim Dinegar, president and CEO of the Greater Washington Board of Trade, gives a wry chuckle when apprised of the funds transfers. “I’d expect you’d want to use the funds for their intended purpose and when that is complete, stop making assessments,” he says. “Sounds like you called ’em on it, and WMATA called ’em on it, and they aren’t giving a full explanation. Unfortunately, where there’s smoke there’s probably fire.”
That kind of fiscal management doesn’t surprise Brown, the former judge, who left DOES in 2010. Now the vice chair and deputy chief judge of the U.S. Department of Labor’s Administrative Review Board, Brown, who has 25 years of labor and employment experience in federal and state courts, insists that “the [law] expressly provides that ‘all monies and funds’ in the Special and [Administration] Funds ‘shall be held in trust by the Mayor,’ and that such funds ‘shall not be used for purposes other than those provided by this chapter.’” Which means, he says, the transfers were improper: “Because of this, the mayor has a fiduciary duty to assure that these funds are only used for workers compensation program purposes, and nothing else. A full and proper resolution of this matter requires more.”
Brown also disagrees with the premise of the WMATA settlement, insisting that offsets or assessment rate reductions “[do] nothing to meet the needs of the District’s workers’ compensation program.” He says that when he headed up the Compensation Review Board, the appellate panel at DOES, beginning in 2005, “the program was in disarray,” due in large part to the lack of funding support. “From what I hear from those still working [there], it appears that the program is still in disarray.”
For example, D.C. salary schedules show that judges on the central panel make about $139,000 per year, while workers’ comp judges at DOES make about $99,000. The disparity matters, according to Brown, because it makes it “difficult to recruit quality judges and keep them there. Necessary programs such as an integrated electronic filing and case-tracking system [also] have languished due to lack of resources.”
Dinegar says Board of Trade members believe that if the city has a surplus of workers’ comp funds, the city should lower assessments or offer rebates to employers; and that the program lacks effectiveness and could use more help in adding judges to adjudicate claims.
Attorney Benjamin Boscolo represents workers before the workers’ comp panel frequently. He, too, disagrees that the assessments are fair game for budget maneuvers.
“This is not a taxpayer benefit,” Boscolo says. “It’s funded by employers. What happens when [a hospital] goes bankrupt and becomes uninsured, and injured employees are supposed to get benefits from the special fund? There’s supposed to be a safety net. Good luck with that.”
Refunding assessments to employers isn’t the correct answer, either, Boscolo says, because the funds are intended to maintain a timely system of potential payments to actual injured workers. “The program is a person,” Boscolo says, “Make it whole. It lost its money. Give it back.”
Not only are the old problems from 15 years ago—financial oddities, backlogs, delayed hearings—still around, but now they’ve got new ones on the way, too.
In February, City Paper reported on a former administrative law judge named Anand K. Verma who issued hundreds of workers’ comp rulings over 16 years without a valid law license. Since that article, a spate of appeals related to Verma has raised the possibility that the program could be flooded with requests for new hearings.
Plus, one judge has left for the Central Panel, and another has resigned, according to multiple sources at DOES. A third, well-respected judge abruptly left the program earlier this year for unknown reasons. DOES would not comment on personnel matters.
Other longstanding ills continue to lurk. Current and former judges say there is racial tension on the panel, and that black judges feel targeted by directives to improve performance.
The acting DOES director, Luparello, has acknowledged negative perceptions of the judges’ panel, and earlier this year he hired a new chief judge to restore order: Mark Sullivan, the former deputy general counsel from WMATA—one of the attorneys who raised legal concerns about the diversion of workers’ comp funds a few years ago, documents obtained via FOIA show.
But Sullivan, the panel’s fifth chief judge in six years, didn’t last long: Last Friday, after just four months on the job, he announced to his staff that he was resigning. He declined to comment.
Amid the turmoil, it’s unclear who is willing or able to turn the place around. Luparello, who used to be the agency’s chief information officer, is a business systems expert with sparse, if any, workers’ comp experience. Stephanie Reich, his chief operating officer and Gray’s 2010 campaign assistant, is a mainstay of a lame-duck administration. And, according to Luparello, Mohammad Sheikh, who supervises the hearings judges, isn’t even a licensed attorney—although according to numerous DOES sources, he is well-versed in the history of workers’ comp funds transfers. (Reached at his desk, Sheikh declined to comment.)
Whoever winds up in charge, says Brown, the city needs to take what he sees as the questionable management of workers’ comp funds seriously by setting up “a healthy and independent workers’ compensation system that is credible, cost-effective and accountable,” and that both workers and employers can trust to deliver “quality decisions that are rendered fairly, impartially, and expeditiously.”
Which, of course, is what the city was supposed to be trying to do back in the late 1990s.