Insolvency is defined as "liabilities in excess of the value of assets."

Last month, the State Auditor's Office released its report of the financial and actuarial audit of the workers' compensation trust fund at the Department of Labor & Industries.  Among the findings? L&I has consistently underfunded the system, relied on investment returns to artificially suppress the true costs of the government-run program, and as a result has a 90% chance of becoming insolvent within the next five years.

L&I Director Judy Schurke was quick to respond, asking the Auditor to refrain from using the word "insolvency," as it might give someone the wrong impression.

It's really a shame when the numbers don't convey "the proper message."

Business owners have complained for years about the high costs of Washington's government-run industrial insurance program.  In 2005, BIAW helped pass legislation (HB 1856) requiring annual audits of the workers' comp trust fund, because of concerns about the Department's reserving practices and its suppression of the true costs to run the program.  As a result of that legislation's passage, annual audits have been conducted since 2006.

The Auditor found that 2008 and 2009 workers' compensation taxes were insufficient to fund the system.  L&I would have had to increase workers' compensation taxes by 33% in the Accident Fund just to break even.  As The News Tribune says, this audit should "set off alarms." By law, L&I is required to set rates at the lowest possible level while still maintaining actuarial solvency.  If the 2010 rates violate this law (since the rates aren't actuarially sound), employers should expect much bigger increases in the next few years in order for L&I to come into compliance.

It should also 'set off alarms' that the Director of the Department of Labor & Industries is asking the State Auditor to sugarcoat the audit report because it makes her agency look bad.