PREPARED STATEMENT BY MICHAEL CALLAS, PRESIDENT, CALLAS CONTRACTORS, INC., REPRESENTING THE ASSOCIATED BUILDERS AND CONTRACTORS, INC.

Mr. Chairman, members of the subcommittee-I am Michael Callas, a member of the Associated Builders & Contractors, Inc. (A.B.C.), and president of Callas Contractors, Inc.-a general building construction company located in Hagerstown, Md.

On behalf of my national trade association's more than 15,000 memberscontractors, subcontractors, suppliers of construction materials and equipment, and associates, I thank the subcommittee for the opportunity to testify on H.R. 5482, a bill which would federalize State worker's compensation systems.

Mr. Chairman, I speak today wearing "two hats". As chief operating officer of a construction company, I'm a member of the largest single industry in this country. The construction industry is larger than the steel, automotive and petro chemical industries combined. Not only do we pay a larger share of W.C. pres miums than any other business every year, but construction firms, by the very nature of their work, are assessed some of the highest workman's compensation rates in the system.

I also wear the hat of a small, independent businessman-one of the 14 million small business firms which provide over half of the jobs in this country—we are the Nation's largest source of private employment, making small business the most tangible local representation of the private enterprise system in America today. These lonely, embattled, creative, individual hardworking business venturers also pay the lion's share of the compensation premiums paid by American industry and business every year.

I will direct my initial remarks wearing my "constructor's hat". W.C. insurance premiums are construction's most costly direct expense associated with an employer's labor burden, which includes taxes, insurance, etc., exceeding the combined costs to the employer of his share of social security taxes, and unemployment compensation insurance-more expensive than the cost of the best hospital, accident and sickness program or pension plan.

Not only is W.C. expensive, but in the 2 years prior from 1977 to 1979, W.C. premiums for construction firms in Maryland have increased 35 percent!!

This legislation involving federalization of the State W.C. systems would serve to further increase these costs since it features provisions that will increase the cost of administering the programs. The establishment of a benefits' review board to pass judgment on appeals by a worker aggrieved by an award made by a State W.C. commission would only serve to help undermine the current system, result in extended and expensive litigation, and end up costing employers more money. The upward adjustments proposed to the minimum income benefits-the higher maximum weekly benefits suggested-benefits indexed to the rate of inflation, would all have inflationary impacts on our Nation's economy. Since these additional costs would have to be added into the construction project's estimate, such a system would increase the cost of every construction contract-for the private construction user, as well as the Federal, State, and local governments at a time when construction costs are all but unaffordable.

The problems that construction employers thruout the Nation would face if this legislation were enacted are already being experienced by construction companies who employ workers covered by the U.S. Longshoremen and Harbor Workers' Act, including District of Columbia private employees. In neighboring Maryland, the manual rate for the W.C. classification code of "concrete construction" is $12.61/$100 wages; in the District-just across the line for the identically same work code, the rate is over $37.28-three times as much!! For excavation, in Maryland, $8.15-for D.C., $20.15!!!

Similar differences occur in all other work classifications-the result of "Federal standards" of Federal W.C. programs. Little wonder that many small construction businesses in the District have been forced to close because of the excessive W.C. costs a serious affordability problem for employers.

This past January, I attended and participated with over 1,600 angry small businessmen in the "White House Conference on Small Business". I say "angry because that was their predominate mood-angry about excessive governmentangry about being saddled with unnecessary regulations and paperwork-voicing their strong objections to costly new government programs.

Our congresswoman from the 6th District of Maryland, mailed out a 1980 questionnaire to her constituents in January. One question. "There are many government programs which have traditionally come under the jurisdiction of the

States. Do you think these programs should continue to be addressed at the State and local level? Or do you think the Federal Government should become more involved in such programs?" 92% responded-keep the programs at the State or local level.

Federal workers' compensation programs, or federally regulated systems, would not serve the different States as effectively as a system that is administered at a local level, responding to local needs. There are many compelling arguments for keeping the system out of the Federal bureaucracy-to remain at the State level. The retention of the system at the State level was recommended by the National Commission on State Workmen's Compensation Laws in its 1972 report-a recommendation reaffirmed in the 1977 report of the interdepartmental workers' compensation task force. This latter study group, composed of high level Federal officials, concluded that, "A program so affected by local employment conditions and local services, and requiring so much interaction with claimants probably is more effectively managed at the State level."

Small businessmen strongly endorse this recommendation-we believe that the W.C. system as regulated and administered at the State level has done a good job serving employees, employers, and the public. These State systems have been improving and have affirmed their intentions to continue improving. To do its job effectively and efficiently, the W.C. system demands a flexibility of action, and a proximity to the people served-requirements which can be met only at the State level.

The Longshoreman's Compensation Act, a Federal compensation program, has been severely criticized on the basis of insensitivity to human needs, growing evidence of waste, and, in some instances, even fraud, burdensome red tape, and unnecessary delays for many who need immediate assistance.

We urge the committee to help to eliminate additional government overregulation-more costly paperwork-red tape-bungling bureaucratic decisions mandated by non-elected officials. New and expensive liberalization of our W.C. laws are not in the public interest.

Thank you. I will be happy to answer any questions that the committee might have.

STATEMENT OF MICHAEL CALLAS, PRESIDENT, CALLAS CONTRACTORS, INC., REPRESENTING THE ASSOCIATED BUILDERS AND CONTRACTORS

Mr. CALLAS. I am Michael Callas, and I am a member of the Associated Builders and Contractors; and I am also president of Callas Contractors, Inc., a general building construction firm, located in neighboring Maryland, Hagerstown.

On behalf of my national trade association, which presently is composed of 15,000 members across the country, composed of contractors, subcontractors, suppliers of construction materials and equipment, and associates, I thank the subcommittee for the opportunity to testify on H.R. 5482.

Mr. BEARD. Your statement will be accepted in total into the record. Mr. CALLAS. Thank you, sir.

Mr. Chairman, I speak today wearing two hats, as chief operating officer of a construction company I remind the committee that I am a member of the largest single industry in our country. The construction industry is larger than steel, automotive, petrochemical all put together. Not only do we pay a larger share of workman's compensation premiums than any of the other industries each year, but construction firms, by the very nature of their work, are assessed some of the highest workman's compensation rates in the system.

I also wear the hat of a small, independent businessman-one of the 14 million small business firms which provide, by the way, over

half of the jobs in our country today. We are the Nation's largest source, single source, of private employment, making small business the most tangible local representation of the free enterprise system in America today. These lonely, embattled, creative, individual hardworking entrepreneurs also pay the lion's share of the compensation premiums paid by American industry and business every year.

I will direct my initial remarks wearing my "constructors' hat." Mr. BEARD. The soldiers in the field.

Mr. CALLAS. Yes, sir. We sign the checks for the workman's compensation premiums, Mr. Chairman, as you well know.

Workman's compensation insurance premiums are construction's most costly, direct expense associated with an employer's labor burden, which includes taxes, insurance, holiday pay, vacation, and so forth. Our workman's compensation premium today exceeds the combined costs of the employer's share of social security and unemployment compensation. It is more expensive than the best hospital, accident and sickness program you can buy today; more expensive than the best and most liberal pension plan.

Not only is workman's compensation expensive, but the cost of the system has spiraled over the past 6 years. Today our Nation's annual total cost for workman's compensation has risen from about $4 billion 6 years ago to over $13 billion today. In the 2-year period from 1977 to 1979, workman's compensation premiums alone for construction firms in Maryland have increased 35 percent.

This legislation, involving federalization of State workman's compensation systems would serve to further increase these costs since it features provisions which increase the cost of administering the program. The establishment of Benefits Review Boards to pass judgments on appeals by workers aggrieved by awards made by State commissions, would only serve to help undermine the current system, result in extended, expensive litigation, and end up costing employers more money.

The upward adjustments proposed to the minimum income benefits, the higher maximum weekly benefits suggested, benefits indexed to the rate of inflation, would all have inflationary impacts on our Nation's economy. Since these additional costs would have to be added into the construction projects estimate, such a system would increase the cost of every construction contract, for private construction users as well as Federal, State, and local contracting agencies, and at a time when construction costs are all but unaffordable.

The problems that construction employers throughout the Nation would be faced with if this legislation were enacted, are already being experienced by construction companies who employ workers covered by certain Federal programs-similar to the Longshoreman's Act and the District of Columbia Workers' Act.

In neighboring Maryland-where I work-the manual rate for workman's compensation for the cost code which we call concrete construction, is $12.61 for $100 worth of wages. In the District, a workman can be working in Bethesda and working on a project in Maryland, and in a project right across the District line, doing exactly the same work, exactly the same code classification, and the rate in the District is $37.28-three times as much.

For excavation, on the same job in Maryland, we have a rate of $8.15. In the District, for the same work, $20.15. Similar differences occur in all other work classifications, as compared with our State and the Federal classification. These results are from Federal workman's compensation programs. The particular District program that I am talking about, the benefits, my carrier tells me, have increased over 600 percent since 1972, and over 300 percent in just the last 2 years. Little wonder-and this is actually happening today-many small construction firms in the District have been forced to close business because of the excessive workman's compensation costs. That has become a very serious affordability problem for the employer, and insurance carriers have refused to write the insurance entirely.

This past January, I attended and participated with over 1,600 angry small businessmen in the White House Conference on Small Business. I say to you "angry" because that was their predominant mood. Angry about excessive government; angry about being saddled with unnecessary regulations and paperwork; voicing their strong objections to many costly new government programs.

Our Congresswoman from the Sixth District of Maryland, in which I reside, mailed out in January her 1980 questionnaire to her constituents. One question, which I think is relevant to this hearing states:

There are many Government programs which have traditionally come under the jurisdiction of States. Do you think these programs should continue to be addressed at the State or local level, or do you think the Federal Government should become more involved in such programs?

Over 20,000 replies were received by the Congresswoman, 92 percent responded, "Keep the programs at the State or local level."

Federal workers' compensation programs, or federally regulated systems would not serve the different States as effectively as a system that is administered at a local level, responding to local needs.

There are many compelling arguments for keeping the systems out of the Federal bureaucracy, to keep them at the State level. The retention of the system at the State level was recommended by the National Commission in 1972, a recommendation reaffirmed in the 1977 report of the task force. This latter study group, by the way, was composed of high-level Federal officials and concluded, "A program so affected by local employment conditions and local services, and requiring so much interaction with claimants, probably is more effectively managed at the State level."

Small businessmen strongly endorse this recommendation. We believe that the workman's compensation system as regulated and administered at the State level has done a good job serving employees, employers, and the public interest. The State systems have been steadily improving and have affirmed their intentions to continue to improve. To do its job effectively and efficiently, the workman's compensation system demands a flexibility of action and a proximity to the people that it serves, requirements that can be met only at the State level.

The Longshoreman's Compensation Act, a Federal program, has been severely criticized on the basis of insensitivity to human needs, growing evidence of waste, and in some instances even fraud, burdensome redtape, and many unnecessary delays for the many who need

immediate attention. Since 1970, under the District Act, or the Longshoreman's Act, workmen's wages covered by this act have increased approximately 62 percent since 1970. The workmen's cost per employee has increased over 500 percent.

Mr. Chairman, we urge the committee to help eliminate additional Government overregulation; eliminate more costly paperwork to the business community, the redtape, and the bungling bureaucratic decisions that are mandated by nonelected officials. New and expensive liberalization of our workman's compensation laws are not in the public interest.

I thank you, sir, and I will be happy to answer any questions you might have.

Mr. BEARD. Well, I tell you, you made a tremendous statement for the small businessmen in this country, there is no question about it— you really gave it to them. As far as small businesses go, I recognize that there is a lot of truth in what you say: You really do employ more than half the people of this Nation.

Mr. CALLAS. Yes; we do, sir.

Mr. BEARD. There is no question about that. You may be in a position to judge your own area of work in the State where you reside, and in the District, in this case; but I do not think you are in a position to judge the whole 50 States because we have had people testify from all over the place.

Mr. CALLAS. I am sure you

have.

Mr. BEARD. You probably know very little about occupational diseases, such as brown lung, asbestosis, and diseases contracted in jewelry shops in Rhode Island. You talked about longshoremen and harbor workers. They are not part of this bill.

Mr. CALLAS. I understand, sir.

Mr. BEARD. If we let the States decide what they feel is in the best interest for the workers, we would have a very difficult situation 10 years from now with regard to the workers in the various parts of the country.

If we left minimum wage, for example-to get off on another issueto be decided by the States, my own State of Rhode Island would be quite high, but in other States, where labor is not so strong, people would be working for a dollar an hour. It all depends on where you come from.

Mr. CALLAS. Very definitely.

Mr. BEARD. We have to have a program that is going to bring equity to the 50 States. We have a situation where some areas have very, very good benefits, such as the District under the Longshoreman's Act. In South Carolina, however, and in other areas, workers have had a very difficult time under a system where people just do not care, period.

So, for all those reasons we are trying to balance this off by coming up with a program that will be fair in all 50 States that we represent on this committee. We do not just represent one area.

Mr. CALLAS. I understand that.

Mr. BEARD. My own State is no angel, but compared to others it is pretty good. There are an awful lot of areas in the country that have not adequately addressed this issue. Yet they have said right along.