How Governments Pay: Lawsuits, Budgets, and Police Reform

Source: Joanna C. Schwartz, University of California, Los Angeles (UCLA) – School of Law, UCLA School of Law Research Paper No. 15-23, July 24, 2015

From the abstract:
For decades, scholars have debated the extent to which financial sanctions cause government officials to improve their conduct. Yet little attention has been paid to a foundational empirical question underlying these debates: When a plaintiff recovers in a damages action against the government, who foots the bill? In prior work, I found that individual police officers virtually never pay anything towards settlements and judgments entered against them. But this finding begs another question — where does the money come from, if not from individual officers? The dominant view among those who have considered this question is that settlements and judgments are usually paid from jurisdictions’ general funds with no financial impact on the involved law enforcement agencies, and many have suggested that agencies would have greater financial incentives to improve behavior were they required to pay settlements and judgments from their budgets. But, beyond anecdotal information about the practices in a few large agencies, there has been no systematic inquiry into the source of funds used by governments to satisfy suits.

In this Article, I report the results of the first nationwide study to examine how cities, counties, and states budget for and pay settlements and judgments in cases against law enforcement. Through public records requests, interviews, and other sources, I have collected information about litigation budgeting practices in 100 law enforcement agencies across the country. Based on the practices in these 100 jurisdictions, I make two key findings. First, settlements and judgments are not always — or even usually — paid from jurisdictions’ general funds; instead, cities, counties, and states use a wide range of budgetary arrangements to satisfy their legal liabilities. All told, half of the law enforcement agencies in my study financially contribute in some manner to the satisfaction of lawsuits brought against them. Second, having a department pay money out of its budget towards settlements and judgments is neither necessary nor sufficient to impose a financial burden on that department. Some law enforcement agencies pay millions from their budgets each year towards settlements and judgments, but the particularities of their jurisdictions’ budgeting arrangements lessen or eliminate altogether the financial impact of these payments on these agencies. On the other hand, smaller agencies that pay nothing from their budgets toward lawsuits may nevertheless have their very existence threatened if liability insurers raise premiums or terminate coverage as a result of large payouts. These findings should expand courts’ and scholars’ understandings of the impact of lawsuits on police reform efforts, inspire experimentation with budgeting arrangements that encourage more caretaking and accountability by law enforcement, and draw attention to the positive role local government finance officials and insurers can and do play in efforts to promote risk management and accountability in policing.