New York State Exposed: State suing small businesses

Posted at: 12/16/2013 9:07 AM
Updated at: 12/16/2013 5:13 PM
By: Brett Davidsen

They are the backbone of our economy but now the state is suing thousands of small businesses across New York saying they've failed to pay their share of an $800-million debt.

For 29 years, Sal Anselmo has been building up his small business in Rochester. New York Manufacturing is its name. The welding, machine building and mold refurbishing shop employs about eight people but a lawsuit threatens to cripple any chance he and his wife have of growing the family run business.

Anselmo said, “We can't really move. We're kind of locked into this holding pattern because we have this lawsuit hanging over our head."

New York Manufacturing is being sued by the state Workers’ Compensation Board and it's not alone.

Thousands of companies statewide are facing the same fate. The dispute goes back more than a decade. That's when many small businesses decided to pool together and pay their worker's comp insurance premiums through self-financed trust funds managed by outside administrators. It allowed them to save money.

Anselmo says he joined at the urging of his insurance broker and paid all his premiums on time. But a few years ago, several of those trusts began to collapse, due to fraud and mismanagement. That left the state to pay the workers’ claims and has left the agency with an $800-million deficit. Now the state is going back to the businesses to make them pay up.

Anselmo says for him it means a $120,000 hit. “Imagine getting a summons all of a sudden out of the clear blue sky -- you're hit with $120,000 bill. I mean, we're not millionaires. We're just average manufacturers."

The state believes the employers who joined the trusts bear the financial burden because they agreed to be collectively responsible for the workers' injury claims something known as "joint and several liability."

We spoke by phone with Governor Cuomo's Deputy Secretary for Civil Rights Alphonso David. “The state has an obligation to pursue these claims otherwise these claims become liabilities for every other employer in the State of New York.

We took business owners concerns to Assembly Majority Leader Joe Morelle. “I think many of the businesses and organizations, many of them are not for profit organizations, I think didn't realize the risk they were taking when they got into these trusts."

Anselmo says they went into these state-approved trusts in good faith and points the finger at the workers comp board for not seeing the red flags. “I think that is where the blame lies is that they did not audit or regulate like they were supposed to."

Brett Davidsen: “Does the Workers' Compensation Board bear any responsibility here? Weren't they in charge of oversight of these trusts?”
Joe Morelle: "Well, actually I have to say, many of the trusts fought any regulation."

In an effort to ease the financial pain, the state authorized settlements to the trust members with an option to pay over time.

David said, “The board has been directed to come up with reasonable repayment plans that will not in any way affect how a business functions, and businesses can also provide their financial statements to the extent they fell they're facing significant obstacles in entering into a settlement agreement."

The re-payment plan was supported by the pro-business group Unshackle Upstate. Brian Sampson is executive director. “Unfortunately for those employers that didn't necessarily understand what they were getting into, they have a cost burden now and we need to find the best way to do it. Them paying a little bit out of pocket and going on a bonding approach seemed to be the best way to do that."

“Pay us $1,000 a month for 10 years and then we'll be okay. That's like a death by a thousand cuts." Anselmo says his company is strong enough to weather the potential financial hit. But the concern is that many other small businesses will just decide to close their doors or move out of state rather than pay up, potentially leaving many people jobless.

Brett Davidsen: “This seems like a colossal mess in which nobody wins.”
Brian Sampson: "Yeah. Welcome to business in the state of New York."
The Workers' Compensation Board did offer Anselmo a settlement figure of $67,000. So far it has recovered more than $200-million from former trust members who have cooperated.