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How Illinois Courts Are Bankrupting The State

Forbes Online

Monday, July 10, 2017  |  Commentary  |  Omri Ben-Shahar Contributor

Budget--State (8) , Emanuel, Rahm , Governor (44) , Workers' Compensation (97)
After two years of political impasse, the Illinois legislature passed a budget. Unfortunately, there is nothing to celebrate, since none of the chronic ills that led to the crisis have been solved. Illinois has two critical problems, and they have not been addressed.

The first critical problem is debt. Illinois owes well over $200 billion, with more than $150 billion owed to pensions and benefits of retired state workers. Tax increases, like the newly enacted and veto-overridden 32 percent increase of state income tax, or Chicago’s recent 10 percent increase of property tax, will stave off immediate pension shortfalls, but will not stop the long-term debt from growing.

The second critical problem is deficit. The massive debt was created because Illinois spends more money than it collects, primarily to pay its workers. For years, political leaders in Illinois Chicago bestowed labor benefit that they could not afford. Why? Largely because they were elected into office with the support of state workers’ unions—the same parties with whom they ended up “negotiating” salaries and pensions. As a result, Illinois is paying its state employees 26 percent more than what similar private-sector workers receive—among the biggest gaps in the country. Current leaders—Republican Governor Rauner and Chicago’s Democratic Mayor Emmanuel—are trying to put an end to this fiscal sinkhole, but with little support from other lawmakers.

Both problems—debt and deficit—emerge from the cost of the government’s workforce. The irresponsible pension obligations have become so massive that they obscure another big cost—the phenomenally high rate by which Illinois employees seem to get injured and file workers’ compensation claims. Here, the problem lies primarily with Illinois courts.

Like every other state, Illinois has a system of employer-funded insurance for workplace injuries. This is a safety net that every worker—in the private and public sectors alike—receives. Under workers’ compensation laws employees give up their right to sue and potentially win large awards in exchange for more modest but speedy compensation; and employers are liable no matter whose fault caused the injury, in exchange for limits on their liabilities. For the last 100 years, this regime has been working nicely in most states.

But not in Illinois. The commission handling workers’ claims and the courts that supervise it have endlessly expanded the liability of employers, forgetting that the system was supposed to cover only employment-related injuries. One Illinois court held, for example, that a worker was entitled to benefits when he was injured throwing himself up against a vending machine in an attempt to dislodge a stubborn bag of potato chips. The court said that the injured employee was a deserving “Good Samaritan” on a rescue mission to help a fellow co-worker who had deposited the coins. The court thought that the defect in the vending machine “created a need for action to dislodge the bag of Fritos.” (I am not making this up!)

Illinois courts are generous to workers even when it defies common sense. A firefighter that was injured when he was out of town for a seminar and engaged in “horseplay” with a fellow worker in their hotel room (“wrestling like two oversized kids”) succeeded in persuading a court that the injury is work related. Numerous employees have had great success receiving lifetime benefits for degenerative injuries like carpal tunnel syndrome, even when it was proven highly unlikely that they were caused on the job. Ex-workers often continue to receive lost wages awards after returning to work elsewhere!

Illinois’ bottomless workers’ compensation system has contributed to the state ranking as one of the most labor-expensive states. In the construction industry, for example, $20 of every $100 of wages goes to workers’ compensation (in neighboring Indiana it’s less than $5). It is perhaps one more reason why the state has lost 300,000 manufacturing jobs since 2000, and why, unlike its Midwest neighbors, it has not enjoyed any manufacturing job growth since the Great Recession.

Workers' Compensation premiums in construction industry, Midwestern states

Workers’ Compensation premiums in construction industry, Midwestern states

In the public sector, the effect is even grimmer. State workers file workers’ compensation claims far more often than in any other employment sector, costing more than 4 percent of government payroll. A whopping one third of Illinois state employees have open claims alleging work-related injuries. (Is it really that dangerous to work for the state?) The claimants are often counseled by lawyers, whereas poor Illinois does not have the resources to either defend this Tsunami of claims or pay the insurance premiums.

It is not obvious why the Illinois workers’ compensation system unraveled, but let’s see who benefits from this cash cow. As in any litigation-intensive area, lawyers do well. The paradigm of a litigation-free insurance system is long dead in Illinois, where 52 percent of workers’ compensation claimants—more than in any other state—are represented by an attorney. (In neighboring Wisconsin only 13 percent are represented.) Health care providers also benefit, since the fees for work injury medical treatments are much higher than the fees Medicare pays for the same treatments. But a big part of the blame is on judges. Don’t courts realize that dealing out insurance benefits makes premiums more expensive? That such reckless courtroom generosity would drive employers out, and the state’s finances to the ground?

Attorney Involvement and Workers Compensation Cost

Attorney Involvement and Workers Compensation Cost

Like the pension disaster, the workers’ compensation fiasco has straightforward solutions. Not surprisingly, they require scaling down the state’s obligations to its employees. It is hard to reduce promised pensions, and it is doubly difficult to deny injury claims. Occasionally, a meek bipartisan attempt to reform the workers’ compensation system is urged, only to be met with the well-oiled resistance of unions, lawyers, and doctors. In a state gerrymandered and constitution-locked to protect the political interests of state workers’ unions, the obvious scale-down solutions remain a long shot