Workers' compensation is all about politics and politics is about money.
In the eyes of lawmakers faced with difficult budget issues and declining tax revenues, second injury funds and other workers' compensation related safe deposit boxes are low hanging fruit that are just too tempting not to pick, despite the intended longer term social purposes of such funds.
So they raid them and then hope that someone, somewhere, doesn't tell them to stop.
Kentucky lawmakers got their wish when that state's supreme court ruled that the state didn't have to return $32 million taken from the Benefit Reserve Fund over the course of a difficult 10 year fiscal period in time.
In the 2000-2002 biennium budget, the governor and legislators appropriated $5 million from the Benefit Reserve Fund for general state purposes. In the 2000-2002 and 2002-2004 budgets, the Legislature and governor made two additional transfers, of $1.7 million and $1.648 million, from the Benefit Reserve Fund to the state's Mines and Minerals Fund.
By 2010, according to the KWCFC director of fiscal operations, the state had taken a total of $32,781,000 from the Benefit Reserve Fund.
The money in the Benefit Reserve Fund is drawn from assessments against workers' compensation premiums paid by private Kentucky employers, and a tax paid by coal-mining firms that amounts to $19 million annually. In 2002, the KWCFC had to increase premium assessment rates from 9% to 11.5% to raise enough revenue to pay the cost of its claim liabilities in some years after the state depleted its reserves. (The rate has now fallen to around 6%.)
The money is used to pay benefits for injured workers who had preexisting work-related disabilities when they suffer a subsequent injury.
A group of Kentucky businesses sued to recover the money and they won at the trial level, which agreed with the arguments of Haydon Bridge Co., the Greater Louisville Auto Dealers Association, the Kentucky Automobile Dealers Association, M&M Cartage Co., the Springfield Laundry 85 Dry Cleaners and Usher Transport, which contended that the state's raid on the Benefit Reserve Fund was an unconstitutional diversion of private funds.
The case made its way to the Supreme Court which agreed with the trial judge, and remanded the matter back down the judicial chain to decide relief.
The trial court then issued an injunction barring the state from making any future transfers of money from the Benefit Reserve Fund to the general fund, or to any other state agency, and also ordered "retroactive injunctive relief" in the form of a judgment ordering the state to return all money it had taken from the Benefit Reserve Fund between 2000 and 2010.
The court further restricted the state from taking money from the Coal Workers' Pneumoconiosis Fund, a separate fund maintained by Kentucky Workers' Compensation Funding Commission that covers black lung benefits for Kentucky coal workers who were last exposed on or after Dec. 12, 1996. The pneumoconiosis fund relies on assessments on the workers' compensation premiums of coal producers and by assessments on coal production.
The Supreme Court didn't like the relief ordered and said that the state can't be ordered to return money it had already spent.
Writing for the court, Justice Lisabeth Hughes Abramson explained that the concept of sovereign immunity "is an indisputable limitation on the power of the judiciary" and that "if the sovereign has not waived immunity or consented to suit an injunction is foreclosed in most circumstances."
Consequently while a federal court may grant prospective injunctive relief against a state officer to compel compliance with federal law, a state court cannot compel a state officer to comply with state law.
The Supreme Court reasoned that the injunction compelling the state to repay the Benefit Reserve Fund was effectively an award for "monetary relief that can only be satisfied by draws on a state's treasury," and thus it ran violated the state's sovereign immunity.
And the injunction was contrary to the separation-of-powers doctrine since it is "exceedingly clear that the state treasury is solely under the control of the legislative branch," and "we are without authority to invade the province of the General Assembly by ordering that funds be drawn from the general fund and deposited to another governmental account."
Left untouched was the order that the state can not transfer any money in the future from the Benefit Reserve Fund to the general fund.
According to reports, as of the end of October the KWCFC had $365.3 million on hand. The permanent injunction should prevent the General Assembly from touching that money in the future.
The Benefit Reserve Fund's outstanding liabilities as of September were estimated to have a present-day value of around $850 million, which officials estimate is about a half a billion short of meeting its liabilities.
Politics, money and workers' compensation. There's really no other explanation necessary for why things are the way they are.