Manhattan Institute Senior Fellow: Municipal lawsuits have ‘been a growing burden on a lot of cities’

Steven Malanga, a senior fellow at the Manhattan Institute, has highlighted concerns regarding state tort laws, which he says leave municipalities vulnerable to costly litigation. This situation, according to Malanga, creates an increasing financial burden for local taxpayers.

“What state law says is, you can’t sue us, but we’ll let you sue the municipality. The thing about municipalities is because it’s government and they can’t go out of business, trial lawyers often make municipalities a focus of lawsuits. Over the years, this has been a growing burden on a lot of cities,” said Malanga.

Across the United States, lawsuits against cities and counties are governed by complex state sovereign-immunity statutes. These laws often protect the state itself while allowing claims against municipalities. Specialized charts tracking municipal liability across all 50 states reveal that local governments can still face lawsuits for various issues, including alleged dangerous conditions on public property and employment disputes. In large cities like Los Angeles, civil-litigation divisions allocate significant resources to defending a wide range of cases in both state and federal courts, highlighting how legal exposure remains a persistent budgetary concern.

National studies of the U.S. tort system indicate that litigation costs significantly impact local budgets and taxpayers’ finances. An empirical assessment by the U.S. Chamber of Commerce’s Institute for Legal Reform estimated total U.S. tort costs at approximately $443 billion in 2020. General and professional liability, automobile, and medical liability account for most of this burden. More recent analysis from the American Tort Reform Association suggests that excessive litigation now drains around $367.8 billion from the U.S. economy annually and is linked to an estimated 4.8 million lost jobs.

Evidence from states that have implemented aggressive tort reform indicates that tightening liability rules can reduce litigation volume and alleviate cost pressures. In Florida, civil-justice reforms adopted between 2022 and 2023 have led to notable improvements: major insurers have filed for auto-rate reductions ranging from roughly 6% to 10.5%, overall litigation has decreased nearly 30% from peak levels, and questionable auto-glass claims have dropped by almost half.

Malanga is a veteran journalist and policy writer who serves as a senior fellow at the Manhattan Institute and senior editor of City Journal. He focuses on urban economics, public-sector finance, and the fiscal impact of government policy on taxpayers.

The Manhattan Institute for Policy Research is a nonprofit conservative think tank based in New York City dedicated to advancing opportunity, individual liberty, and the rule of law through rigorous research on domestic policy and urban affairs.

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FULL, UNEDITED TRANSCRIPT

Bryan Hyde: [00:00:00] Welcome to the Prairie State Wire Podcast. I’m Brian Hyde, and today I’m joined by Steve Langa. He is a senior fellow at the Manhattan Institute, as well as the Senior editor for City Journal and former executive editor of Crane’s New York Business. Steve, great to have you on the program. Well, thanks for having me.

So we have a topic to discuss today that I’m gonna guess maybe a lot of people don’t sit around the dinner table discussing this, but they probably would if they knew more about it. And that is the incredible costs associated with litigation at the municipal level. And apparently this is a problem that’s happening all across the country.

Set the stage for us if you. 

Steve Malanga: Well, essentially what happens is that around the country, most states do not allow people to sue their state government if something goes wrong. Like if there’s an accident and there’s liability because a road was improperly maintained and so forth, but. A whole bunch of states make exceptions for their [00:01:00] municipalities.

In other words, what state law says is, you can’t sue us, but we’ll let you sue the municipality. Well, the thing about municipalities is because it’s government and they, they can’t go outta business. Trial lawyers often make municipalities a focus of lawsuits. First everything from slip and falls to questionable actions by the police department.

And over the years, this has been a, a growing burden on a lot of cities. And what we’ve seen, particularly in the last couple of years, is after in the era where cities had kind of fought back and we’re doing a good job of restraining these costs, in the last couple of years, they’ve exploded again. And in particular, what I focused on is our three biggest.

Cities in this recent peace to New York, Chicago, and Los Angeles. No one will be surprised to know that all three of these cities face wider budget problems right now. And in the midst of that budget problems, all of them now face really staggering increase. Litigation [00:02:00] costs, which is helping to drive these, these problems in.

In fact, in, in Los Angeles, the budget cuts that became very controversial before the wildfires this year were pushed at, you know, at least in part, they were caused by rising litigation costs and to the city. So this, this is sort of central. Right in Los Angeles. It’s central to the kind of budgetary problems that people were complaining about before the wildfires and which exacerbated the city’s lack of response to the wire wildfires.

So that’s where we are right now. 

Bryan Hyde: Steve, one of the first questions that comes to mind is, who bears the brunt of these costs? Is this something that insurance policies are, are there to cover? Do insurance companies bear the cost, or is this something that comes right outta the taxpayer’s pocket? 

Steve Malanga: Well, well, two, two things.

First of all, many cities, because of their size, they’re essentially self-insured. They don’t go out and, and, and get insurance policies for [00:03:00] stuff like this. They rather self-insure themselves, meaning they put aside money in their budget every year for it. But the, but even those cities that do buy insurance, right?

Anyone who buys insurance knows that if you get claims against you, right? Ultimately you’re paying for it in higher insurance premiums. So one way or another government is paying for it, which means one way or another taxpayers pay for this. And that’s an important thing to to remember because in some cities, basically when litigation, uh, uh, gets outta control it, you get to the point where there are a lot of people who are just looking to cash in almost as if they think this is something that somebody else is paying for.

But in the end, of course, it’s taxpayers who pay for this. 

Bryan Hyde: Wow. Let’s, let’s put some numbers to this just to, to kind of illustrate the, the scope. For instance, uh, New York City, how much, how much did they pay out in, in claims just in the last fiscal year? 

Steve Malanga: Well, it’s extraordinary to [00:04:00] think about it, but it’s now up to $2 billion and, and that includes a $500 million jump just within the past couple of years now, I’ve been writing about a New York City, uh, uh, uh, litigation costs.

Since the nineties and back then it was several hundred million dollars and it was increasing at 10, 15% a year. And those were big numbers, but it’s just staggering what has happened in the past couple of years. And part of what’s driven this in New York City is that while you had in the nineties and the early two thousands, a series of mayors of Giuliani and Bloomberg who fought these.

Cases and fought these judgments and took them to court. In the past couple of years, you’ve had mayors like de Blassio in New York who basically settle these cases in. Some, some, sometimes these, these discrimination cases or different kinds of cases that were going on for years just decided to settle them in the, in favor of the, the [00:05:00] litigants and at, at, at huge costs.

And so we’re now seeing these, these extraordinary increases in, in. In these payouts, like I said, $500 million. That’s like really a, a, a, a one third increase in costs in just one year. So now we’re up to $2 billion a year in, in liability claims in New York City. 

Bryan Hyde: Tell me about why it’s, it’s easier to, to sue cities now.

Is it a matter of people have become more litigious or, you know, have, have the laws changed in, in some of these states to, to make it, uh, more simple to to file suit? 

Steve Malanga: So a couple of things. Legal changes often matter extraordinarily because each state has their own sort of liability framework. You would be surprised, you know, some states, in fact, there’s an organization that for years would put out a list of what they call a.

The tort hell holes, they’d call them. Those are the five states with the, with the mo, with the, the worst laws, the mo, the [00:06:00] most tr, the most litigant friendly laws, if you will. So there’s a big difference from state to state, um, in terms of liability. And part of the problem is that, you know, it’s, it’s, it’s a.

It’s common to say there are a lot of lawyers in the who are in the state legislature. You know, lawyers tend to run for, you know, be because I, I guess they’re very familiar with the legal structure and legal framework. So there are a lot of lawyers in state governments off often as representatives. And they’re often, you know, litigation friendly.

And so in California, to give you one example, in 2018, they lobbied for a law which changed the definition of, of harassment in the workplace. So that rather than having to prove a litigant, having to prove that there was kind of sustained harassment. In their workplace, a single incident could now spark a a, a [00:07:00] lawsuit, a credible lawsuit that went to trial.

Now, the problem is that city employees in Los Angeles are now using that law. To sue their own city. The, the police department in, in particular has, has paid out $68 million in claims in just the last few years from cops saying, suing the, suing the police department because they claim a single incident of harassment.

And what happens is that often times, if a, if a. Police officer is disciplined or simply reprimanded by, by their superior, they’re now bringing claims of harassment via that. And the police, the police commissioner of LA recently said that what we have going on is municipal litigation lottery because of this new law.

So changes in laws can o often spark this and that. That was a change in law that was heavily pushed by the trial lawyers in [00:08:00] the state. The state, you know, the state legislature and Governor Jerry Brown at the time signed it into law and sometimes legislators don’t understand or realize what they’re signing into law.

It sounds very reasonable, but this is a case where it’s, it’s had a huge impact on the city of Los Angeles’s own finances. 

Bryan Hyde: I like that term. Litigation lottery. That’s, that’s very descriptive. And, and yet I can, I can see where this, this would seem like a gold mine to, to any attorney. Who’s looking, you know, to, to make some easy money.

Steve Malanga: Again, these kinds of lawsuits are, I guess the word might be, I mean really they’re like an, they’re like an the legal form of an infection. Once they take hold, they just spread rapidly and you know, part of the reason they do is because. Trial lawyers especially, are very, what I would call entrepreneurial.

So as soon as they see there’s a new law that allows a certain kind of lawsuit, they start [00:09:00] actually searching for litigants who, who, who, who might file these lawsuits. And the word spreads very rapidly. And so before you know it, you have a tsunami of a leg. Legislation. By the way, the term, the original term litigation lottery was.

Inclined by someone at the Manhattan Institute, which is what city Journal’s a part of back in the eighties, who wrote a famous book about the litigation lottery lottery, which actually in the eighties sparked a, if you will, a a, a reform movement, especially at the federal level. But periodically you see this.

This reemerging in the states, particularly in very narrow ways. And you know, again, it’s states where they tend to be, the legislators tend to be kind of what I would call plaintiff friendly. They’re always worried about the little guy. And so they pass these laws and before you know it, the little guy, you know, gets together with other little guys and they [00:10:00] create this tsunami of litigation, which is what we’re seeing now.

Bryan Hyde: Talk to me about Chicago. You mentioned that that’s, that’s one of the three big cities that’s feeling the pinch of, of all of this municipal litigation. What are some of the examples of, of where they’re, they’re feeling the pain? 

Steve Malanga: So there’s two things. One, again, as I talked a little while ago in New York City about a change in mayors and mayors who suddenly are.

And city council people who suddenly are more willing to sell suits, and part of that is going on in Chicago. There have been a number of cases where there, you know, one particular case where a, a woman was locked outta an apartment in the winter in Chicago, and if you’ve ever spent a winter in Chicago, you understand what that means.

And the, the police were summoned and they offered her help. The only thing she wanted was help getting in. And she refused their help and, you know, tried to solve this problem on her own. Wound up getting frostbite [00:11:00] and having had to had a medical emergency. I think she even lost maybe some toes and stuff and subsequently turned around and sued the city.

The city settled the. Paid her $5 million and some al some of the aldermen were upset about this because they said this was not our fault. Why are we settling a suit like that? So you have that as one aspect of this where again, cities are under certain administrations, they’re more likely to settle these kinds of lawsuits, and that really drives up the cost.

The other thing that’s happening in Chicago. And this is, this is poor management is their police department has a history going all the way back to the nineties of sometimes. Having to corrupt officers who are, you know, never discovered or disciplined or tolerated. And so the city of Chicago is also facing a whole bunch of lawsuits and people who were prosecuted and put in jail in cases where they [00:12:00] may not have been guilty, or at least the evidence was stacked against them to to, to get guilty convictions.

And now years later. The, there are millions of dollars now in unjust arrest and pro prosecution cases, which are playing out because of a number of detectives who were allowed to operate a little bit as cowboys, if you will, in the nineties and maybe the early two thousands. And now these cases are all playing out to the extent that I, I believe it was the controller of Cook County recently warned Alderman that more of these.

Big judgments are coming out. I mean, the, these cases alone have cost the city something like 30 million, do $39 million in judgments. And the city has actually, the, the judgments they paid out, I think it was last year, they budgeted $82 million for judgments against them. And the actual number came in at more than twice that.

So. [00:13:00] So you, so you have this, you know, when you have a, a tolerance of, of bad or questionable employees, or a failure to, to adequately manage employees, you do raise the, uh, the threshold for, uh, for, for allowing yourself to be sued. 

Bryan Hyde: And, and I have to ask, is it cheaper on the part of the cities to just settle?

You mentioned that I think it was New York in particular, one tends to to settle rather than, than let it go through the, the litigation process. Do, do they do that to, to hold down costs, so to speak. 

Steve Malanga: So it really depends on the case. If you listen, if you go back to the, uh, Chicago example that I just gave you, you know, you have two different cases there.

So I think the cases involving the unjust prosecution arrest and prosecution. And incarceration are cases where it is wise to settle because there clearly seems to be a pro have been a problem there. But in New York City, the [00:14:00] case that the De Blassio administration decided to settle after it was fought for years by two administration is a case.

That was a case of discrimination. That black and Hispanic teachers in the nineties brought against New York City because what the city did was they had in place a test that teachers had to pass of basic skills test that teachers had to pass in order to be finally certified as long-term permanent employees.

And what what studies showed is that. White teachers passed the test disproportionately more than black and Hispanic teachers did. So the black and Hispanic teachers sued the city for discrimination. Now the thing is they were never able to claim there was anything specific. About the test that was discriminatory.

It was only the outcomes, the disparate [00:15:00] outcomes, which they claimed indicated there must be some kind of discrimination going on. And the city fought this in the court for years, and the, the, the plaintiffs were not winning. De Blassio comes into office and says, we should just settle this and pays out.

$1.8 billion is in the process of paying out $1.8 billion. Some of these cases go back to the nineties. So it really does depend on the case. You don’t always do yourself better by, by settling, and in fact, if you settle too much, what happens? More and more people sue, right? It’s an incentive to sue, right?

So it depends on the case. 

Bryan Hyde: So let’s talk where, where does this solution begin? Is, is it found in, in correcting or preventing future implementation of bad policy? 

Steve Malanga: Well, it’s both. It, it’s, it’s two things, right? On the one hand, states need to be very, very careful about their litigation environment. First of all, it damages business.

We’re talking only about municipalities, right? And in, in [00:16:00] part, municipalities are, cons are really considered good targets because. They don’t go outta business, right? They don’t go bankrupt. They just raise taxes. I say they just raise it, right? So, so trial lawyers a actually enjoy these kind of long-term suits.

They, they, they pursue them because they know that the, that the municipality’s gonna be around and have to fight this businesses on the other hand, right? They go outta business or, or they move to different places because if, if they’re in, what, what’s known as litigation hellhole, that’s one more thing.

They have to worry about. And you know, we’ve had states, I won’t go into great detail, but California had laws that they passed on top of the American With Disabilities Act, which is a federal act back in 2000, around in the two early two thousands, which made it easier to sue small businesses in that state.

And it created a mess until they fixed that. So there’s that kind of jeopardy. At the same time, we have to be aware that, that [00:17:00] cities are sometimes not well managed. And again, you know, PE elect people are elected on, on promises they make to the citizenship, and they don’t always fulfill that promise, but they, they aren’t always good managers.

And so in the case of Los Angeles, something we haven’t talked about, but they’re also facing a lot of lawsuits because their maintenance schedule for roads and bridges and traffic lights and all these essential infrastructure. It’s, they’re 10 years behind in their, and, and so they’re being sued, in some cases, legitimate cases for, for not fixing things because they are, they, they, they still, after years have not been able to figure out or, or put in place a rational maintenance schedule for their roads and bridges, which is kind of the essential stuff that, that people expect.

Government to do, and you know, there’ve been, the Los Angeles Times is editorialized about this problem. So it’s not really just one thing, but you, but one, [00:18:00] you, there are definitely states that have litigation friendly laws that that exacerbate this problem, but there are also mismanaged municipalities that create some of their own problem.

Bryan Hyde: Wow. You make a strong case for this is why taxpayers need to pay close attention. You can’t just outsource this to people who crunch the numbers. Again, we’re talking with Steve Langa, he’s a senior fellow at the Manhattan Institute and City Journal’s senior editor. Steve, thank you so much for joining us on the Prairie State Wire Podcast.

Steve Malanga: Well, thank you for your interest in this.