Budget Outline 2013-15

In 2013 the Legislature has three big budget problems to address. It may be that there are other issues for the Legislature (gun safety, mental health, transportation…) but as the budget chair I have an odd focus on what I’m responsible for.

  1. Balance the 2013-15 budget, plus make sure that the 2015-17 budget is structurally sound. We start with a $904 million shortfall and have to address the two issues below, plus comply with the strongest 4-year balanced budget requirement in the nation.
  2. The Supreme Court’s 2012 McCleary decision has major impact on school funding decisions and adds $1.4 billion to the already difficult problem.
  3. The Medicaid expansion called for by the federal Affordable Care Act (ACA) is complex, but provides us with the opportunity to cover hundreds of thousands of Washington citizens and save hundreds of millions. Implementation decisions will be difficult given the campaign rhetoric, but I believe we will get there.

The political situation in the state Senate will make resolution more interesting and create a lot of political theater. I look forward to negotiating a rational solution.

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Long-term pension costs in Washington

The New York Times had an article this week about pension costs faced by states and large cities across America. Their argument is that the rate of return assumed by the plans is too high because returns for most funds over the last decade have been lower than the estimate. They say that 8% is the rate most states use, and it’s what Washington has been using for the past few years.

Washington is in the enviable position of having a mostly fully-funded pension system. We are one of the best-funded systems in the country. The Pew Center on the States does a comprehensive review periodically and serves as a clear basis for comparison between states. They ding Washington for not funding health care benefits for retires, which we largely do not offer, so its no surprise that we haven’t funded it. Many of the local governments in Washington do have significant liability here, and have done a haphazard job of putting aside money to pay for these.

Chart from Pew report on WashingtonI think it’s interesting that the Pew folks ding us for having the system 100% funded. At the beginning of the decade we were 120% funded, and we’ve allowed this to decline to the current levels, but if you look at the chart you can see that once we brought the funding level down to 100% we kept it there. Overfunding pension accounts isn’t necessary and consumes resources that could be spent on something more important.

The Times article seems to want states to lower their expected return. We are doing this in incremental steps every biennium with a target of 7.5%. I’m a little concerned about using the 10-year returns as the baseline – the last decade included two significant recessions, one of which was (and still is) the worst recession since the great depression. Our 40-year return is above 8%. This may or may not be a better basis for comparison. We will watch the returns and adjust as we go.

Pensions are something that require a long time horizon to think about. Making abrupt changes based on short-term data is dangerous, but so is not making decisions that adjust the funding levels if there really are fundamental changes in the economy.


House plans to move budget-related bills forward this week

OLYMPIA – The House is moving forward Wednesday with a short list of bills that will be necessary to implement (NTIB) the supplemental operating budget. Although an agreement on the final budget has not yet been reached, the House Democratic negotiating team wants to get the ball rolling.

“We have been negotiating in good faith practically every day of this special session,” said House Ways and Means Chair Ross Hunter (D-Medina). “We’ve taken significant steps toward the Republican position, and are still willing to discuss the final sticking points, but the time has come to act as well as talk.”

“We will also be placing a striking amendment to the budget on the bar Wednesday morning,” said House Majority Leader Pat Sullivan (D- Covington), “and we plan to take action on it later this week. The length of time it takes to pass a budget through both chambers means we have to begin moving things now.”

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Retire-Rehire Program Abuse

The Seattle Times has a great story on the use of the “retire-rehire” provision in state law that allows someone to retire, and then be hired back by the state or another governmnet but still collect his or her retirement. When I searched on the issue on the internet I hit a bunch of similar stories from 2003, the last time this program came up. Same problem.

Retired, then rehired: How college workers use loophole to boost pay

A Seattle Times investigation has found that at least 40 university or community-college employees in Washington retired and were rehired within weeks, often returning to the same job without the position ever being advertised. That has allowed them to double dip by collecting both a salary and a pension.

Seattle Times June 26, 2010

I’ve gotten some mail from constituents about it and am sending the following reply:

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