Incentivizing Better Policing


Taxpayers pay a high price for police misconduct. Between 2010 and 2014, the ten cities with the largest police departments spent a total of $1.4 billion to resolve misconduct cases. The Chicago Police Department (CPD)—subject to a run of recent troubling stories involving officer-involved shootings—paid an average of $16.5 million annually from its departmental litigation budget between 2012 and 2014, while city funds contributed an additional $35.5 million on average in each of those years.

One would hope that in addition to compensating victims, the large payouts across the country would serve to deter police from committing even more acts of misconduct. But that does not appear to be the case. And so the question becomes: how can we utilize payouts to incentivize better policing?

The problem now is that police departments generally don’t feel financial pain from losing lawsuits, or financial reward from having fewer claims against them. As Professor Joanna Schwartz reveals in her exhaustive study on the subject, settlements or judgments are often paid out of jurisdictions’ general funds with no police contribution. Moreover, even when settlements are ostensibly paid from police budgets, budgets are often arranged such that the departments experience no financial impact.

Even if departments felt the financial bite, it wouldn’t necessarily influence police conduct. As Professor Daryl Levinson has argued, governments don’t behave like private companies, which can be expected to respond predictably to financial incentives. Government officials, under pressure to control crime, may be willing to finance “aggressive policing” with tax revenues, an option private companies do not have.

Still, Prof. Schwartz suggests, there is at least anecdotal evidence that financial pressures really do induce police departments to take measures to limit misconduct. Officials in law enforcement agencies that pay their own litigation costs—such as the Los Angeles Sheriff’s Department, California Highway Patrol, and Metropolitan Police Department—reported to Schwartz that budgetary liability does have an impact on behavior. Moreover, there also are encouraging signs from outside the law enforcement context: New York City’s Health and Hospitals Corporation (HHC) recently reduced its liability payments by 14 percent after it started paying the price for its own lawsuits. Meanwhile, the NYPD—which does not pay for litigation—saw liability payments increase by 31 percent during the same time period.

The trick may be putting in place the correct set of financial arrangements.

For example, while it would probably be effective to make individual police officers personally liable for misconduct, this is a political nonstarter and might also over-deter some policing we would prefer to see happen. (This is what fans the debate about the so-called Ferguson Effect.) Given these criteria, and given the best information available from Schwartz’s study, the most effective and realistic system for a self-insured department may be the following:


1)  Money to pay settlements or judgments should come from the police budget, not from the general fund.

At least ONE of the following:

2)  When the department doesn’t use up all of the money set aside for lawsuits, it may use it on other needs, like hiring personnel.
3)  The department shouldn’t receive more money from the general fund when it goes over-budget on lawsuit payments.

Seven of the 100 police departments studied by Professor Schwartz share all three of these features. For example, the North Carolina Department of Public Safety gets a general budget for all expenses and may earmark the money for specific purposes, including litigation. If it underspends on litigation, it may use this money for other needs, and if it overspends, it must take money from elsewhere in the department.

Chicago, by contrast, has the first budgetary element but neither of the remaining two. CPD receives a specific budget allocation to pay for settlements and judgments. If CPD underspends on this budget, it can’t use the money for other departmental needs. On the other hand, if CPD overspends on lawsuits, it can and does request extra money from the general fund. Changing the CPD’s budgetary structure might not cure all its ills, but the current arrangement is not making a positive difference.

This proposed system is flexible enough to address some of the political challenges facing police reform. Mayors, governors, and legislators are understandably reluctant to create a system that could result in police budget cuts. The political strength of police unions is well-known, and elected officials don’t want to take a political hit in the event that police budgets go down and crime goes up on their watch. But any jurisdiction that is hesitant about potential cuts to police budgets still might create an incentives-based system by allowing surpluses in the litigation budget to be spent on other department needs.

Given the unpredictable nature of politics, it is impossible to say precisely what will cause governments or police departments to work to limit police misconduct. But there is certainly evidence that when financial pressures or rewards are large enough, they may serve as a mechanism to incentive good conduct. At the least, it’s worth the try.