Illinois Court Strikes Down Ruling Against Workers Comp Fee

Published January 1, 2006

Barely one year after an Illinois circuit court judge ruled a state surcharge on workers compensation insurance policies violates the state constitution, the Illinois State Chamber of Commerce and State of Illinois must again square off in court over the matter.

The Illinois Supreme Court in October sent the case back to Cook County Circuit Court Judge Patrick McGann for more fact-finding. In November 2004, McGann declared unconstitutional the state’s Industrial Commission Operation Fund Surcharge. That ruling called into question hundreds of business fees the state has enacted or increased in recent years. (See “Illinois Court Calls Business Fee Hike Unconstitutional,” Budget & Tax News, January 2005.)

“We have spent several hundred thousand dollars [in legal fees] to get an incomplete answer from the state supreme court,” said Doug Whitley, president and chief executive officer of the Illinois Chamber. “The bad news is the supreme court kicked the case back to the circuit court, where we are going to have to spend more money and time to supplement the record with detail the court can use to make a judgement. We’re expecting this to drag out another three to four months.”

Most Fee Revenue Diverted

The state enacted the workers compensation insurance surcharge in 2003. The chamber told the court most of the revenue generated by the surcharge was diverted to pay for general state operations, making the surcharge illegal.

McGann ruled the surcharge created an arbitrary class of taxpayer and violated a provision of the state constitution that requires all new fees to operate like existing fees, which raise only enough money to cover specific activities. In the case of the workers compensation insurance surcharge, the fee ostensibly was to pay the cost of operating the Illinois Industrial Commission, which adjudicates contested workers compensation claims.

McGann ruled the surcharge has no “reasonable relation” to the cost. He noted in his ruling that the workers compensation surcharge had brought in $31 million, and $22 million of it was going to the state’s general fund.

Fee Goes ‘Beyond Role’

“The surplus resulting from this fee increase was clearly anticipated,” McGann wrote in his ruling. He added, “This is clearly beyond the role of fees in the financing of governmental operations.”

The state has enacted or increased more than 300 business fees in recent years, and hundreds of millions of dollars have been diverted from the fee accounts to general operations.

Whitley said he is especially bothered by the Illinois supreme court’s decision because the state conceded to all the allegations in the chamber’s lawsuit.

The supreme court ruled McGann correctly refused the state’s request to dismiss the case, but added he had acted prematurely in ruling for the chamber.

State Admitted Allegations

“The sad commentary is that at the time the case was heard at the circuit court level, the state stipulated to all the findings,” Whitley said. “The supreme court did not accept the stipulations. They said they need more facts. Now we’re going to have to go back to mining the details out of the budget act of 2005 to prove the fees are excessive.”

The chamber contends if the General Assembly needs more revenue for the general fund, lawmakers must be straightforward and enact a tax increase. By raising business fees ostensibly to fund a specific state service and then diverting most of the fee revenue to general operations, the state is engaging in a “bait and switch technique that fails to embrace any semblance of fairness and good government,” Whitley said.

Steve Stanek ([email protected]) is managing editor of Budget & Tax News.

For more information …

The Illinois Supreme Court’s ruling on the constitutional challenge to the state’s workers compensation insurance surcharge may be read at