This editorial will appear in Thursday’s print edition.
Washington’s ill-fated attempt to share market gains with some public employee pension plan members is back to bite the state budget again.
If a King County judge’s ruling stands, the state could be forced to restore gainsharing, putting a further burden on an already underfunded retirement system.
Budget writers are struggling to find the money just to pay down a $6 billion unfunded liability in two of the state’s oldest pensions. The restoration of gainsharing could add $1.6 billion to the tab over the long term.
Lawmakers have no one but themselves – and their predecessors – to blame.
They once envisioned gainsharing as a no-cost way to share extraordinary returns with state workers, but failed to appreciate how much the pension system relies on using those gains to hold taxpayers harmless during the down years.
Gainsharing passed in 1998, back when the market was flying high and no one could conceive of returns falling below the 8 percent needed to keep the pension system stable.
But then the dot-com bust hit, with 9/11 shortly following. Suddenly, the state budget was on the hook for covering losses that otherwise would have been absorbed by surpluses from prior years.
To make matters worse, legislators had compounded their miscalculation by making gainsharing a permanent part of the receiving member’s base pension benefit, rather than a one-time bonus.
By 2007, the state actuary was projecting the perk would cost $6.7 billion over 25 years. The Legislature canceled gainsharing that year – but not without potentially getting the state in deeper. In an ill-advised attempt to make amends, lawmakers replaced gainsharing with lesser benefits such as earlier retirement.
Public employee unions were undeterred in their opposition. They sued, and last week King County Superior Court Judge Richard Eadie upheld their complaint. Eadie ruled that the state could not unilaterally abandon gainsharing – unless it provided a comparable replacement.
The upshot is that lawmakers might have been better off not making any attempt to assuage state workers.
Unions argue that their members are not only entitled to the restoration of gainsharing, but also to keep the Legislature’s peace offerings.
Gainsharing alone is a $150 million hit to the 2011-13 budget, which is already facing a $3 billion shortfall. The hole gets $100 million deeper if the replacement benefits remain on the books.
At a time when many states are rolling back pension benefits that have grown unsustainable, Washington could be headed the other way. State services will pay the price for lawmakers promising more than the pension system could deliver.