Workers' Comp Costs Challenge Town's Ability to Control Taxes

Tuesday, October 16, 2012 | 0

A change in the way workers’ compensation costs are accounted for in Chautauqua County is challenging the Town of Hanover’s ability to comply with the state’s 2% cap on property taxes, the Dunkirk Observer reports.

Chautauqua County is located at the extreme western end of New York, on the border with Pennsylvania. The county has a population of 134,905 people.

Until this year, workers’ compensation costs for all municipalities in the county were a part of the county budget. The county in turn would charge individual municipalities for their costs by reducing the amount of revenue it shares. 

This year, in an effort to comply with the tax cap, the county ended this practice; forcing its municipalities to include workers’ compensation costs in their individual budgets.

For the Town of Hanover this new budget item created quite a dilemma. The town’s budget officer indicated that the property tax cap would limit tax increases to $30,000. The town was facing an increase of $25,000 in mandatory retirement costs, and it expected that increased medical premiums would be at least another $5,000. Now another $61,000 is needed to be added to the budget to fund workers’ compensation. 

Clearly mandatory costs will become a larger share of the budget – to the detriment of other municipal services.

While Hanover is a small community with a small budget, its dilemma illustrates a huge problem facing municipalities in New York state. As a matter of policy, New York has mandated immediate stability in property taxes. However, policymakers have been slower to adopt needed reforms which limit the size of increased mandatory costs. As a result, communities such as Hanover are forced to deal with a situation in which the increase in mandatory costs is several times greater than the allowable increase in taxes under the new law. 

Clearly, reform is needed.

One area that policymakers should consider when adopting reforms is the workers’ compensation assessment tax levied on employers in New York state. According to research published by the Workers’ Compensation Policy Institute, New York’s 18.8% tax on workers’ compensation premiums is nearly five times the national average and more than twice that levied by the next most expensive state. For Hanover, this accounts for roughly $11,500 of their total budget for workers’ compensation. Significant reform in this area would not solve their problem – but it would be a step in the right direction.

The story, by assistant news editor Nicole Gugino, is here.

The Institute’s research is here.

Paul Jahn is executive director of the New York Workers' Compensation Policy Institute. This column was reprinted with his permission from his Workers' Compensation Chronicles blog.