Legislature divided over policy bills

Senate Republicans want reforms, while House Democrats say budget deal should be priority

bshannon@theolympian.comJune 9, 2013 

As Senate Republicans and House Democrats continue their staredown over a state budget deal in the last days of a special session that ends Tuesday, the Republican-led majority controlling the Senate still is holding out for changes to the state-run workers’ compensation system — or other reforms — before agreeing to raise taxes.

The Senate Majority Coalition pulled a handful of its reform bills to the floor Saturday, setting up votes as soon as Sunday afternoon. These include a bill letting permanently disabled workers as young as 40 take lump-sum payments — called structured settlements — of their lifetime disability pensions.

Reforms in 2011 allowed the disability pension buyouts initially for workers 55 and older — with a phase-in eventually to include 50-year-olds. But fewer workers than expected opted for the buyouts, which meant much less savings than planned.

Sen. Janea Holmquist Newbry, R-Moses Lake, contended Saturday that without further reforms, the state’s reserve funds won’t have enough money to avoid hundreds of millions of dollars in premium-rate hikes on businesses in future years as the Department of Labor and Industries rebuilds its reserves after the Great Recession.

“If we see inaction by the Legislature this year, it is a guaranteed tax on employers,” Holmquist Newbry said.

She added that a Senate vote might come within 48 hours.

Democrats who control the House say that votes on a budget bill and financing-related measures — and not extra policy bills such as workers’ comp — are the one clear thing the Legislature must do before leaving town. House Majority Leader Pat Sullivan, D-Covington, said Friday that the state faces a possible government shutdown July 1 if it doesn’t get a budget soon.

“We’re four days out from the close of this special session,” Sullivan said. “If you don’t focus on the budget and the work that needs to get done, then you go into another special session.”

Sullivan noted that the GOP had asked for as many as 33 bills.

L&I SEES CONTINGENCY RESERVES GROW

While lawmakers fuss over reforms and spending, the Department of Labor and Industries is standing aside, not seeking changes or warning of rate hikes. The agency’s contingency reserves steadily have grown thanks to cost savings and improved investment returns — even while the agency avoided general premium-rate hikes in 2012 and 2013.

Data released in May showed the system’s contingency reserves shot up from $580 million in June 2012 to $720 million in September and $953 million by year’s end. That is more than halfway to L&I’s 10-year goal of $1.7 billion that was set by an advisory committee made up of business, labor and government members last fall. And that was before the surge in Wall Street equities this year.

“The most fundamental thing to say is that contingency reserve — whether there is enough money in it or not enough money in it — is a judgment call,” L&I spokeswoman Renee Guillierie said earlier this year. “There is no hard and fast figure.”

The state-run insurance system handles 85,000 claims and pays out about $1.5 billion a year. In 2011, former agency director Judy Schurke sought ways to reduce costs for long-term disability cases that make up 8 percent of claims and 85 percent of benefit costs. Business and labor were split on several of the proposals.

Those earlier reforms included the pension-buyout option for permanently disabled workers age 55 or older; a medical provider network to move patients into the care of proven experts in the medical treatment of on-the-job injuries; and financial subsidies to employers that take an injured worker back early on lighter duty.

So far, most of those reforms — except for structured settlements — are on track and expected to hit a target of $1.4 billion by the end of June, according to Guillierie.

Guillierie also said L&I is ahead of schedule in setting up its regional Centers for Occupational Health and Education, which help injured workers get the right treatments as soon as possible after an injury. She said university research shows that help from the COHE centers “can save up to $470 per claim in the first year of a claim and up to $1,200 in the first four years of a claim.”

Jeff Johnson, executive director for the Washington State Labor Council, said the occupational health centers and the provider network, which began in January, have potential for huge savings. But the council opposes any expansion of the structured settlements for disability pensions, believing they are not a good deal despite what the business lobby and Senate Majority Coalition leaders say.

“We fundamentally have a sound system. We’re saving a bunch of money” from 2011 reforms, Johnson said. “If you really care about the system and you want to save money, you’re barking up the wrong tree.”

Johnson said if more savings are needed, then the state should look into ways of improving the health and safety of workers.

“That (structured settlement) bill is not going to provide the level of savings they are looking for,” Johnson said. “If it did, it would come out of the hide of injured workers.”

Johnson added that the state consistently is ranked in national reports as a good place to do business and that costs of workers’ compensation and unemployment insurance are less than 1 percent of the cost of doing business for a corporation like Boeing.

CALLS FOR REFORM

But the improving health of the workers’ comp reserve fund isn’t enough to soothe the business lobby or Holmquist Newbry. She said her bill lowering the age for settlements — the only one of three reform measures she still is pushing — could save close to $1 billion over 10 years.

Besides lowering the eligibility age to 40 for workers wanting a lump-sum buyout of their disability pensions, she wants to let workers who have legal representation bypass a hurdle in the 2011 law — a formal finding by the state Board of Industrial Insurance Appeals that the settlement is in the worker’s best interest.

Data shows the BIIA has approved less than half of the roughly 60 settlements it has received as of early this year. Johnson says that is because the other applications lacked sufficient information.

Kris Tefft, legal counsel for the Association of Washington Business, also is advocating for reforms needed to ward off future rate increases on businesses. He and Holmquist Newbry argue that the state insurance system actually faces a $2.2 billion challenge — if one includes the real costs of future liabilities.

They get to the larger number because they say L&I is understating the future cost of its liabilities in the trust fund because of too-optimistic investment returns. Tefft says the state potentially would need a rate surcharge on all businesses totaling $200 million a year over the next decade — or between 3.7 percent and 5.5 percent per year.

But L&I has been looking into that $1.1 billion liabilities-cost issue, and its advisory group that includes businesses agreed a year ago to phase in its investment formulas over a 10-year period. The agency continues to look for ways to reduce administrative costs and take other steps to avoid jolting rate hikes, according to new L&I director Joel Sacks.

Senate Majority Leader Rodney Tom ratcheted up the rhetoric last week in his battle with labor unions and the House Democrats. Tom said the state must reduce employer costs to make sure firms such as Boeing do not pull out of the state — or, as Boeing recently did with its engineering division, relocate more of its workforce to low-wage places such as South Carolina.

“They consistently remind us that their workers’ comp costs per claim are higher in Washington than all the other 20 states (it works in) combined,” Holmquist Newbry said. “We are outliers.”

The workers’ comp bill is only one of a handful of bills on which the Senate is demanding action as part of a final budget agreement with the House. House Democrats last week offered a sharply reduced tax proposal and reduced spending in their $33.6 billion spending plan for 2013-2015. Among the jettisoned taxes was a more than half-billion-dollar extension of a business-tax surcharge adopted in 2010.

Other bills the Senate Majority Coalition Caucus now appears to want in a budget deal include a bill to preserve consumer lending with effective interest rates at almost 200 percent; a bill requiring a principal’s OK for the reassignment of a teacher; a limit on the growth in non-education spending; and changes to how state toxic cleanup funds are spent.

Without passage of some combination of reforms to education and programs such as workers’ comp, Tom said Saturday that the Senate will not pass revenue bills that the House Democrats want.

The first special session runs out at midnight Tuesday. Gov. Jay Inslee has said his inkling is to immediately call lawmakers in Wednesday to finish the budget if a second session is needed.

Brad Shannon: 360-753-1688 bshannon@theolympian.com blog.thenewstribune.com/politicsblog/ blog.thenewstribune.com/stateworkers/ @BradShannon2

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