Ok. I have narrowed the problem more with enough playing and found the workaround. But I suspect this is a REAL bug in DNN.

To fix this you must open file manager and hit the update button. Almost as if the administartor is NOT assigned permission to the folders until the administrator assigns the permissions to himself. I never actually hit the update button because you don't need it to upload. But when I tried your suggestion to open the permission to everyone, I used the update. Then I flipped the permissions back and the file pickers still work. Then I did further testing on all my other 3.1.3 portals and figured out that all you need to do is use this update button. Again, I ask if someone can create a real quick test portal on a 3.1.3 instance and verify this? Both of my 3.1.3 installs are on the same server and done by the same person (me) so I can't trust the tests completely.

 Thanks all. I'm so happy I can work around this."