As the asset value meltdown rattles through the world's financial institutions, it lays waste to banks, pension plans, hedge funds and insurance companies. Little acknowledged so far is the damage done to government agencies whose funding and asset shortfalls will land with taxpayers and others. One such wreckage looms at Ontario's notorious fiscal shell game, the Workplace Safety and Insurance Board.

Long known for its multi-billion-dollar unfunded liability, the WSIB is a giant money-losing worker-safety monopoly. Under provincial law, all but a few employers and the self-employed are forced to pay WSIB premiums into an insurance system that covers injured workers' rehabilitation and lost wages. Making a profit at this business is apparently impossible, even with a monopoly. Annual losses are routine. In 2007, the WSIB reported expenses of $5.4-billion that were covered by premium revenues -- collected from companies operating in the province -- of only $4.3-billion. That produced a loss of $1.1-billion. The board's unfunded liability, damaged by low investment returns, jumped by 30% to $8-billion.

Back in 2006, the board's management boasted that it had things under control. After years of failure, the board claimed its unfunded liability had finally begun to improve. It had fallen to $5.9-billion, down $600-million from the year before, leading the board's management to conclude it had "turned the corner" on the unfunded liability problem.

To get to that nirvana-like status, however, the board recognized certain "unrealized market value gains from available-for-sale portfolio investments." Whatever that means, and whatever the origin of those "unrealized" gains (set at $1.5-billion), the board took credit and declared victory over its perennial burden. In doing this, however, the Ontario WSIB appears to have been cashing in on the upside of mark-to-market and fair-value accounting methods. Management spoke of its emerging "financial sustainability."

Then came fiscal 2007, when the whole thing collapsed. New operating and investment losses arrived, driving the unfunded liability

to $8-billion, higher than it had been in 10 years (see graph). Being a government agency, the WSIB does not report regularly on its affairs, but it's a safe bet that the WSIB's unfunded liability is about to fly to a new record during 2008.

Premiums collected from employers, based on wages, are bound to be lower as the Ontario economy slows and employment falls. At the same time, expenses are rising, in part due to generous new benefits brought in by the Ontario Liberal government, under Premier Dalton McGuinty. The benefits increased by 2.5% for about 155,000 workers each January through to 2009, at a cost of almost $1-billion.

But the main drag on the WSIB balance sheet this year is likely to come from new investment losses. The board has been counting on annual returns of 7% on its investment portfolio. Last year it lost 0.7% and 2008 will be much worse.

We review this gruesome state of affairs in part to draw attention to the plight of the WSIB as a plaything of the Ontario labour ministry and the province's unions. Employers fund this growing extravaganza, and the prospect for future premium increases is high.

Another reason to expose the WSIB's deteriorating financial position is the Ontario government's somewhat mysterious attempt to rope a new set of employers into the system. On Oct. 28, Ontario Labour Minster Peter Fonseca suddenly produced legislation aimed at forcing 90,000 independent construction workers into the WSIB system.

For the most part, those workers appear to be self-employed individuals and the owners of small construction firms. If Joe the Contractor is a self-employed single-person shop, he can self-insure through other private insurance policies. Under the new law -- now being rammed through the Ontario legislature -- Joe will be forced to pay WSIB premiums. If Joe the Contractor has three workers on his payroll, those workers are already covered by WSIB. The purpose of the legislation is to mandate the inclusion of Joe personally under Ontario's Workplace Safety and Insurance Act. If Joe has two or three or more partners in the business who are now also self-insured, they will be forced to join the WSIB system.

It seems like a small issue, but the Canadian Federation of Independent Business is up an arms and has mounted a campaign to stop the legislation. The CFIB says the new inclusion rules would amount to an average tax of $11,000 on small construction businesses. The gross premium gain to the WSIB is likely in the hundreds of millions of dollars.

Big unionized construction firms support the plan. The government says it's part of an attempt flush out underground construction firms who are not paying their fair shares of costs. But now hardly seems like the time to impose new taxes on the Ontario economy -- unless, of course, it's a back door attempt to cover the mounting liabilities within the mismanaged WSIB.