New York Robbing Peter to Pay Paul

Governor Andrew Cuomo of New York has submitted a state budget that siphons off around two billion dollars from the New York Workers Comp fund (New York State Insurance Fund) into the general funds of the state.  As a general rule, this is a very bad idea that has not worked out so well in other states that have tried it.

Appropriating the money set aside to pay the Workers Compensation claims that the fund is obligated to pay is just bad policy, but it's an inherent weakness of state administered Workers Compensation plans.  The nature of the long tail of Workers Compensation claims means that money has to be put aside for those future costs, but a pile of money is always an irresistible temptation to politicians.  So Cuomo can now boast that he has filled his budget gap without raising taxes--and all he had to do was rob money set aside for injured workers.  That money will still be eventually needed, of course, and so additional rate increases on employers covered by the fund would seem likely.  Thus, the governor's actions amount to a stealth tax on employers. 

Thank God my home state of Illinois doesn't operate a state Workers Compensation fund.  One shudders to think about how Illinois politicians would abuse such a kitty.  Hopefully, they don't read this blog--I would hate to give them the idea.

Of course, a well run state fund could offer some genuine advantages to employers.  But as this New York story illustrates, it can be difficult for politicians to let a state fund operate prudently.