Workers' compensation is a state-by-state regulatory system, or more aptly perhaps various "systems." Most workers' compensation systems are not funded by taxes the way other government services are. That means taxes in the sense of sales taxes or income taxes, sources of state revenue often referred to as "general revenue" within state budgets. Instead, there is a trend of financing these agencies and systems with assessments upon the employers that are in the systems.
Florida is consistent with this paradigm. Sections 440.50 and 440.51, Fla Stat. delineate the funding process and establish the "Administrative Trust Fund" for safekeeping of the collected funds. Section 440.51 provides:
(b) The total expenses of administration shall be prorated among the carriers writing compensation insurance in the state and self-insurers.
Section 440.50 provides:
There is established in the State Treasury a special fund to be known as the “Workers’ Compensation Administration Trust Fund” for the purpose of providing for the payment of all expenses in respect to the administration of this chapter.
Each year, there is a projection made regarding expenses of administration of Florida system, including the Division of Workers' Compensation, Office of Judges of Compensation Claims, and more. The premiums being written for workers' compensation insurance are examined, and an "assessment rate" is calculated to derive sufficient funding. Essentially, each insurance carrier pays an assessment to the Trust Fund. Self-insured employers pay an assessment essentially upon what their premium would have been if they had purchased a policy instead.
Though there are nuances and distinctions, funding of workers' compensation systems follows similar practices in various states. It is possible for these processes to result in funds accumulating in trust funds, that is a "surplus." And as a result, states have been known to look to such trust funds for purposes other than workers' compensation regulation. A Florida example was reported by the Sarasota Herald Tribune several years ago.
In June, WorkersCompensation.com reported Business Leaders Accuse OH Legislators of 'Raiding' Workers' Comp to Balance Budget. Ohio faced an issue with balancing its budget for 2017. Unlike the federal government, balanced budgets are generally a critical requirement for states. That means that income (revenue from taxation) must meet the outflow (spending on state government itself, public works, government benefits etc.). Essentially, Ohio reportedly needed to cut spending or increase revenue by $1 billion.
Faced with an unbalanced budget, Ohio leaders proposed to take money from various trust funds, including the workers' compensation trust. The proposal was to take up to 2% each from a variety of state funds:
including the Industrial Commission, the Bureau of Workers' Compensation, the Environmental Protection Agency, the Department of Insurance and others — are primary made up of fees and assessments paid by businesses for specific purposes.
The Ohio Chamber of Commerce objected, as did other business groups. They characterized the legislative effort as a "raid (of) the budgets of these exclusively employer-funded agencies.” But, legislative leaders portrayed the "transfers" as "no different than the 3-to 4-percent cuts to most state agencies."
The Columbus Dispatch reported that organized labor also objected to such a transfer. It contended that the proposed transfer was inapropriate, and that
the Ohio Supreme Court long ago held that it is unlawful to transfer moneys from the fund to unrelated accounts, such as the general revenue fund.
In the end, the legislature reportedly balanced the state budget without those proposed transfters from other accounts.
In October, the trust fund concept was in the news again, in Kansas. WorkCompCentral reported that state faced a budget issue in 2009, "during the height of the recession." The Kansas legislature "swept" three million dollars from the Workers’ Compensation Fee Fund, and other "user fee" accounts "to balance the state budget." Of the total, $2.3 million was from the workers' compensation trust fund. Litigation soon ensued.
While the litigation was pending regarding the employer's claims for restoration, the Kansas Supreme Court issued its opinion in Kansas Building Industry Workers' Compensation Fund v. State of Kansas. As an aside, that case is an interesting analysis of the "political question doctrine," a practice of courts to refrain from interceding in issues which are essentially policy issues. The doctrine has its roots in the constitutional analysis of separation of powers. The opinion is lengthy, but a worthwhile read regarding this political questions, separation of powers, and who may be a party to a lawsuit.
The Kansas Building Industry decision remanded a similar lawsuit regarding trust fund "sweeps" to the trial court for further proceedings. In it, the Kansas Supreme Court essentially resolved a number of process disputes in favor of the Building Industry Fund, concluding that it had proven that assessments increased as a result of the legislative action, and that the Fund was an appropriate party to seek relief (that the Fund had "standing"). It is likely that this August 2015 Kansas Supreme Court analysis played a role in the more recent order to restore the "swept" funds.
The Lawrence Journal reported that the Kansas litigation was intriguing in another regard. The lawsuit was filed by the Speaker of the Kansas House of Representatives, representing those business interests. The Journal reports that a lawsuit filed by the Speaker of the House in such a setting is rare. After leaving office, the former speaker continued that representation through the recent decision, which reportedly included an order that the state pay over one hundred thousand dollars in legal fees.
The experiences of Kansas and Ohio are both interesting. Many will be surprised that tax revenue is not the source of workers' compensation regulatory budgets. The analysis is interesting in that regard alone. In our collective exposure to civics in school, assessments and trust funds are nuances that were simply not discussed as we learned how government works. Furthermore, the interaction of revenue sources, and the process of balancing budgets may be intriguing as well.
It is important to remember that in the federalism system of the United States, much is defined and regulated by state governments. There are at least fifty-six workers' compensation systems, as recently noted in Fee Cap in West Virginia. The various states have workers' compensation laws and systems, and each is subject to interaction with other state law and state constitutions.
It is important to remember that in the federalism system of the United States, much is defined and regulated by state governments. There are at least fifty-six workers' compensation systems, as recently noted in Fee Cap in West Virginia. The various states have workers' compensation laws and systems, and each is subject to interaction with other state law and state constitutions.
Thus, there will be variation and distinctions among states. Although the similarities in funding sources (assessments) might suggest a potential for some similarity in conclusions regarding the uses to which such funds are put, it is entirely possible that a different state's courts might reach entirely opposite conclusions to those of Kansas. However, the analysis and discussion is nonetheless fascinating for those interested in workers' compensation.
