CITY AUDITOR Matthew Watson is wrong to object to taking the city's worker's compensation program out of the federal government and putting it in the District government. If home rule has any meaning, it is that the city controls the administration of programs that are of critical importance to it. Worker's compensation clearly qualifies as an important program to this city. As it stands now, the program is administered as an afterthought by the U.S. Department of Labor, with little appreciation for the fact that city employers feel they are being unfairly squeezed dry by high worker's comp payments. Those payments have taken a 550 percent leap in the past eight years.

To understand fully why the worker's compensation program should be shifted to the District government, some background is necessary. In most of the country, state governments set their own laws to establish benefits for persons injured in the course of their jobs. But for the District, not a part of any state -- and for seamen, who cross state lines in the course of their work -- there was no law to cover claims of injury during work. The federal government resolved the problem in 1928 by establishing one law to cover maritime workers and federal territories, including the District. But in 1972 maritime officials came to Washington to ask that the law be changed. Seamen were filing costly suits against ship owners to receive added compensation for injuries because they felt their benefits under the law were low. The maritime officials got benefits greatly increased under a new worker's compensation law in return for a prohibition on individual suits by seamen against their employers. The District, covered by the same law, was swept up in the change.

The liberal benefits in the new law resulted in increased costs for businessmen in the city. Only now are District businessmen trying to have the law adjusted to reflect the needs of employers and employees. District labor unions are naturally reluctant to agree to changes in the law. But more workers are likely to be hurt if city businesses begin to exodus to Virginia and Virginia and maryland, where worker's compensation insurance is much less costly. The competitive edge for Maryland and Virginia businesses over District businesses is large because of the compensation law: in 1979, one construction company reported that the cost of constructing a $10 million office building in Virginia would be $400,000 less than the cost of constructing it in the District because of the high cost of the city's worker's compensation insurance.

Studies and hearings are necessary to determine the nature of the problem with the current law and to make the right changes. But getting the administration of the law into the hands of the District government is also a necessary change. Handling worker's compensation is a basic responsibility of local governments, and the District should be no exception. The law is too important to the city to be left in the basement of some mammoth federal bureaucracy that has other things to do. As for the added cost that the auditor says will result, the city already pays about $820,000 a year to the federal government to administer the program. Even if that cost increases, as Mr. Watson says it will, the city government can bear the load. It is the price of political responsibility.