Part 2 of this report provides an overview of key job climate-related issues and updates on policy changes that have been enacted since our 2017 report was published. These policy issues include:
Local Government Consolidation;
P-12 School Funding; and
Workers’ Compensation Reforms.
Local Government Consolidation
Illinois has the largest number of local governments of any state in the nation. This, combined with inconsistent and incomplete financial reporting, makes it nearly impossible to provide effective oversight and a lack of transparency severely hampers efforts to identify opportunities for efficiency and savings.
With nearly $30 billion24 in revenue, the money going to the 7,000 units of local government is substantial and should receive closer scrutiny. If local governments consolidated, achieved operating efficiencies, and reduced costs, the State could benefit financially in addition to the likely savings to local taxpayers. However, a key impediment to consolidation is the often poor quality of local government data. Reporting requirements vary depending on the type and size of government, and there are no consistent accounting standards for these reports. We reiterate the data-related recommendations we made in Bringing Illinois Back:
Require all local governments to report full and accurate financial data to a single State repository;
Require all local governments to report information in a standardized, consistent format; and
Provide tools, training, and other supports to local officials to meet these new requirements.
In addition, we recommend that the State take action to remove statutory roadblocks to consolidation and enact the recommendations included in the final report of the 2015 Local Government Consolidation and Unfunded Mandate Task Force, including:
Empowering Illinois citizens to consolidate or dissolve local governments via referendum;
Expanding DuPage County’s consolidation program to all 102 counties;
Allowing all townships in the State to consolidate with coterminous municipalities via referendum;
Protecting the Intergovernmental Cooperation Act to preserve the ability of local governments to coordinate; and
Empowering State agencies to incentivize local government consolidation and cooperation.
P-12 School Funding
Since we released Bringing Illinois Back in 2017, the General Assembly passed Senate Bill 1947 (the “Evidence-Based Funding for Student Success Act”) based on evidence-based funding principles, including the calculation of a unique Adequacy Target for each school district based on student demographics, accounting for local resources and differentiating what each district is expected to contribute, and the creation of a distribution system that ensures State money goes to the neediest districts first. It fundamentally changes the way the State provides education funding to local school districts. Key components of the law include:
An evidence-based school funding formula that prioritizes school districts with the greatest need and least property wealth;
A $350 million year-over-year increase in education funding (contingent on annual appropriations) that is distributed through the new formula;
Pension parity for Chicago Public Schools (CPS) by providing State funding for the normal cost of pensions and retiree healthcare costs through new provisions in the State’s pension code; and
Recognition of CPS’s payments to amortize its unfunded pension liabilities in the school funding formula.
This law represents an historic step forward in establishing a school funding system that is fair and equitable for all students. However, there are a few areas the State needs to monitor going forward to ensure that the law works as intended, including:
Provisions that would adjust for pension costs in the formula if non-CPS districts ever became responsible for paying their pensions;
The Property Tax Relief Pool;
Ensuring that the State fully meets the $350 million funding target each year; and
The funding formula’s interaction with federal education funding.
Workers’ Compensation Reforms
Companies often consider the cost of workers’ compensation insurance in a given state when deciding where to locate, making it an important component of a state’s jobs climate. Illinois historically has been a higher-cost state for workers’ compensation premiums and despite improvement stemming from significant reforms enacted in 2011, the State continues to have higher costs than the majority of states. Illinois’ workers’ compensation premium rates are the 22nd highest in the country.25
Workers’ compensation premiums reflect the overall cost of providing workers’ compensation benefits in a given state, which can vary significantly depending on the rules and regulations in place. Broadly, there are three major determinants of workers’ compensation costs: causation, medical care costs, and indemnity benefits.
Compared to other states, Illinois has a relatively broad causation standard, requiring only that the injury stemming from
employment is a cause of the injury (e.g., any pre-existing conditions are not taken into account). Once the injury is determined to be work-related, it is fully compensable under workers’ compensation.
Illinois’ medical care costs for claims in the workers’ compensation system tend to be higher than other states. Illinois’ medical costs for claims with more than seven days of lost time are 24% higher than the median for comparison states. 26 This is due to the fact that Illinois is on the high end of both the prices paid for medical treatment and utilization rates (visits per claim and services per visit). Other states control these costs by tying their medical fee schedules to Medicare and implementing utilization limits; by contrast, Illinois’ fee schedule is not tied to Medicare, and the State does not have any utilization limits in place.
In addition, indemnity benefits per claim in Illinois tend to be higher than most other states ($22,911 compared to the median state’s cost of $17,815).27 Broadly, this is due to three factors: weekly benefit amounts for temporary disability, the duration of temporary benefits, and the benefit structure for permanent disabilities.
The State enacted workers’ compensation reforms in 2011, which reduced workers’ compensation costs overall. However, there are additional cost reduction measures the State should adopt to align more closely with best practices:
Defining traveling employees in statute (e.g., codifying the factors that determine whether or not an employee is required to travel for work);
Following best practices of other states and tying medical fee schedules to Medicare rates;
Adopting limits on utilization of certain medical services;
Implementing best practices for reducing the average length of temporary disability; and
Adjusting the use of American Medical Association (AMA) guides for determining impairment so that AMA guides have more weight but are not mandatory.
24 General and Special purpose governments include counties, municipalities, townships, and special purpose governments (e.g., park districts). Source: State of Illinois Comptroller’s Office, “Fiscal Responsibility Report Card, 2016,” Local Government Division, p.17.
25 This ranking is based off the premium rates of several different classes of employment, from clerical office employees to iron and steel work. Source: Chris Day and Jay Dotter, “2018 Oregon Workers’ Compensation Premium Rate Ranking Summary,” Department of Consumer and Business Services, State of Oregon. October 2018.
26 Evelina Radeva, “CompScope Medical Benchmarks for Illinois, 18th Edition,” Workers’ Compensation Research Institute, October 2017, p.13.
27 For claims with >7 days lost time for 2014/17 (the first year listed in the dates for claims indicates the injury year; the second year indicates the maturity of the claim). Evelina Radeva, “CompScope Benchmarks for Illinois, 18th Edition,” Workers’ Compensation Research Institute, October 2017, p.18.