October 11, 2018: This blog has been updated to include omitted information.
Ontario Premier Doug Ford's recent attack on his predecessor, Kathleen Wynne, made for catchy headlines — "Doug Ford Claims Liberal Deficit 'The Worst Political Coverup in Ontario's History. But as Ford claimed the previous Liberal government "lied" over a $15-billion budget deficit, he may have been busy hiding the unfunded liability of the Workplace Safety and Insurance Board (WSIB).
On Sept. 26, 2018, the Ontario government announced Ford's move in a news release entitled "Ontario Open for Business: WSIB Premium Rate Savings to Help Employers Boost Economy" with a blurb of the tautology variety: "Elimination of Unfunded Liability ensures sustainable and accountable system."
Ford declared the move "great news for everyone in the province. Employers can use these major savings to put more money back in the economy, invest in new equipment and infrastructure, and create good jobs right here in Ontario."
The seven-paragraph announcement is a classic mash-up of Ford's campaign rhetoric. And like in Ford's 2018 provincial campaign, what was left unsaid is worth paying attention to most.
Waving a wand at a $14.2-billion problem
To be sure, the news release did provide some great explanations, as in definitions: "The unfunded liability — the shortfall between future obligations to pay injured workers and the money available to pay them — stood at $14.2 billion in 2011."
In addition, the news release said: "A fully-funded system means that if workers are hurt on the job or develop illnesses, they will receive the benefits and services to which they are entitled, giving peace of mind to workers and their families."
What Ford seems to be doing is pretending that no unfunded liability exists.
The question that remains unanswered: how can the Ford government seemingly claim they found the more than $14 billion required to fully fund the WSIB system? The news release never explains this. What Ford seems to be doing is pretending that the problem of unfunded liability doesn't exist.
WSIB's unfunded liability has been a notoriously difficult problem to solve. Since 1984, attempts have been made to eliminate it. Yet one wonders how Ford somehow has managed to wave a magic wand at a problem haunting Ontario for decades and has made it disappear.
The reality is complicated.
The WSIB reported in its Q2 2018 Results Report that the unfunded liability was eliminated 10 years ahead of its legislated schedule that began in 2012. "At June 30, 2018 our net assets on a Sufficiency Ratio basis were $0.7 billion, an increase of $2.0 billion from an unfunded liability of $1.3 billion as at December 31, 2017."
WSIB said that it did so even though it "reduced the average premium rate paid by employers twice in the past two years" and "benefits for people with workplace injuries and illnesses have also increased," and that it achieved the results "through the component of premiums collected to help eliminate the UFL ... and through our ongoing positive investment and operational performance."
Ontarians may want to know more about how the WSIB managed to pull off such a feat and whether what WSIB did, and presumably still does, in managing its finances is a one-off or sustainable. Even if the unfunded liability is not on the books now, it doesn't mean that it is gone for good. The unfunded liability is merely an estimate, according to the Auditor General of Ontario, and no one can tell the future.
The discount rate used to calculate the present value matters. As indicated in a 2012 C.D. Howe Institute paper entitled "The Hole in Ontario's Budget: WSIB's Unfunded Liability," different rates used will generate different results, as lower rates will yield a greater liability. In the past, WSIB did try to use a rate that's greater than what others would have used.
As described in its 2012 report entitled "Funding Fairness," WSIB:
"... assumed investment returns of seven per cent per annum going forward, and therefore used a 'discount rate' of seven per cent to estimate the capitalized cost of its future obligations. The consensus in early 2011 was that a discount rate of six per cent would be more realistic; at the time of writing in late 2011 that consensus appears to be moving towards an even lower figure, in the range of 5.5 per cent."
If the rate of investment returns dips so a lower discount rate is used, the present value of the liabilities would balloon.
The 2012 report showed that if the discount rate decreased even one percentage point, from seven per cent to six, it would result in $2-billion increase to the unfunded liability.
Ultimately, whatever was done to get rid of the unfunded liability was done under the Liberals' watch before Ford came to power. The Ford government has challenged the financial management of the previous Liberal government vigorously, but it stops short of celebrating the financial management of the WSIB under the same Liberal government.
Instead, Ford is eager to use the WSIB announcement as a jumping-off point to slash premiums to be paid by businesses.
Who really benefits?
Notwithstanding Ford's rhetoric about sustainability and accountability for all Ontarians, businesses are the designated beneficiaries of Ford's move to cut the average WSIB premium rate for employers by 30 per cent on Jan. 1. The news release notes that "premium rates for employers will be sharply reduced due to the elimination of the WSIB's Insurance Fund's unfunded liability." The news release ended on a similar note: "We will continue to manage a system that reduces the burden for business while giving our workers and their families peace of mind."
Is the Ford government promising that all injured workers will be taken care of? No. The Ford government is making promises, but the promises are not made to workers. Ford is making promises to employers at the expense of employees. In the government's news release, the only concrete and specific promise Ford can no doubt keep is to make sure businesses can pay a lot less so they can make more profits.
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What Ford is saying is that what's good for businesses is good enough. Likely the construction industry and some others would love to pay less.
It will be workers who are injured in Ford Nation who will pay the price.
CORRECTION - Oct. 11, 2018: A previous version of this blog stated the WSIB's unfunded liability has not been addressed, and suggested Doug Ford did not have plans to eliminate the shortfall. WSIB issued on Sept. 26, 2018 a news release in which it said it has eliminated the unfunded liability. Its methods were detailed in a Q2 2018 results report. This post has been updated to include information about the WSIB report and how the unfunded liability is calculated.
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