Gov. Chris Gregoire is asking the Legislature to make changes to the state's health care and pension systems to help address costs as Washington grapples with a projected $5 billion deficit for the next two-year budget.
Gregoire said Monday that the steps she was proposing would help manage the immediate budget gap and “set us on a more stable financial course for the long term.”
She said some of the fastest growing costs in the state budget were pensions and health care, and that those increasing costs would ultimately have serious consequences for both essential services in Washington and the state’s financial stability.
The most significant proposals deal with the pension system for state employees, with changes that Gregoire said could save the state more than $11 billion over 25 years. She wants to end automatic yearly pay increases for some state pension plans, a move she says would save the state $368 million for the 2011-2013 budget and would cut the state’s unfunded pension liability of $7 billion by nearly 60 percent.
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Plans affected are older and were closed to new members in 1977. The Legislature originally passed the annual increase for those plans in 1995 to help protect against inflation, but left the option to amend or repeal the benefit.
Gregoire said that because the increases weren’t linked to inflation, they were granted even when inflation did not go up.
She said that employees would lose about $600 a year, but that over the next 25 years, it would save state and local governments about $9 billion.
Gregoire said that her proposal would allow the Legislature to consider cost-of-living increases, “but they will no longer happen automatically.”
The Washington Federation of State Employees, which represents 42,000 state employees, opposes the idea.
“To take it away from pensioners now seems unfair,” said Director Greg Devereux, who wondered why Gregoire didn’t first suggest tying the payments to inflation. “To simply eliminate them seems a little drastic.”
Gregoire also wants to end early retirement incentives for future state employees who are in later pension plans, another idea opposed by Devereux. Gregoire said it would save the state and local governments $2.2 billion over the next 25 years.
Gregoire is also seeking to close a loophole that allows state employees who retire to return to work for the state while still receiving their pension.
In June, an investigation by The Seattle Times found that, as of the beginning of this year, about 2,000 people were collecting both wages and a pension from the state. In about two-thirds of those cases, retirees had returned to a state job on a part-time or on-call basis.
The Times found that 58 workers, including 40 in higher education, had retired and been rehired full-time within three months.
A bill addressing the retire/ hire issue for higher education employees was introduced Monday by Rep. Reuven Carlyle, D-Seattle, and co-signed by more than a dozen of his colleagues. Carlyle said he didn’t coordinate with the governor on the release of his bill, but that he would work with her on the issue.
“We have a fiduciary responsibility to manage our employee policies with extreme, razor-sharp focus, not only on what’s fair to the employee but to the taxpayer,” he said.
Another proposal Gregoire called for would cap the state’s contribution to higher education pensions at 6 percent, with the allowance for individual institutions to contribute more. She said such reform could save the state $57 million through mid-2013, and the overall pension reform could save $425 million during the same period.
The ideas are a piece of the governor’s two-year budget proposal for 2011-2013. Her entire budget proposal will be released Wednesday.
Gregoire also said she wants to limit increases in the state’s health care costs to no more than 5 percent a year by 2014, and that she will pursue legislation to consolidate a majority of the state’s health care purchasing into a single agency.
The state provides health care to more than 335,000 public employees, retirees and their family members, as well as to more than 1 million low-income children and adults. Overall state costs have increased to more than $5 billion a year, officials said.
Gregoire said she is pushing for Washington state to become part of a pilot program that focuses on paying health care providers based on the quality of care instead of the number of office visits. Her goal is that both the state and private health costs decrease by a combined $26 billion over the next decade, she said.
Gregoire said she wanted to use strategies that have helped the state keep costs of its Medicaid program low, like the increased use of generic prescriptions, and apply it to state agencies.
“We want to benefit everyone in the state,” she said. “That means businesses, and local governments and others all working together to drive down costs while driving up quality.”