Paid Family Leave and the Budget: Thoughts, Questions

The conference report on the supplemental budget that appears headed for approval later today settles, as Jason Mercier at the Washington Policy Center pointed out yesterday, the question of funding the initial administration of the state's paid family leave program.  But I think the appropriation raises more questions than answers.

Quick recap:  Unable to agree on a source of funds for the paid leave benefits established last year, and unable to agree on an implementation bill vesting a state agency with the legal authority to operate the program, the Legislature instead deferred to the budget process to appropriate a modicum of start-up funds for the rudiments of a computer system necessary to run the program and imply, through a proviso, theoretical legal authority for the Employment Security Department (ESD) to begin administering the program.

Here's where the Legislature ended up:  They appropriated $6.2 million from the general fund into the Family Leave Insurance Account created in last year's paid family leave bill, E2SSB 5659.  (ESHB 2687, sec. 722).  This appropriation also appears as a line item in ESD's appropriations.  (ESHB 2687, sec. 227).  But last year's bill creating the program and establishing the Family Leave Insurance Account did not give ESD authority to administer the program; it did not give any agency authority to administer the program but it did give the director of the Department of Labor & Industries authority to expend funds from the account for initial administration. 

Last year's bill also gave the L&I director discretion to loan up to $18 million of workers' compensation pension funds to the Family Leave Insurance Account and then further loan money out for initial administration (although the bill did not specify exactly to whom such a loan would be proper).  Last November, L&I did loan $1.5 million of workers' comp funds to ESD despite ESD's shaky statutory authority to begin administering the program, and based upon the (now mistaken) assumption that an implementation bill would pass in 2008.

Since L&I is the only agency with authority to act under last year's paid leave bill, and that action is limited to making loans out of the workers' comp pension fund and expending funds out of the Family Leave Insurance Account, this year's budget at section 218(22) contains a proviso directing L&I to enter into an inter-agency agreement with ESD to expend funds from the Family Leave Insurance Account for implementation of the program. 

In ESD's appropriations, section 227(11) of the budget, the agency is directed to begin developing information technology necessary to implement the program, including a variety of "efficiencies" contained in the report of last summer's Joint Legislative Task Force on Family Leave Insurance.  These "efficiencies" were corner-cutting measures suggested by ESD and L&I during the task force process as a way to make operation of the program less expensive than the 2007 bill originally envisioned. 

In this regard, the most striking statement of "efficiency" is at section 227(11)(a)(iii) of the budget, "[n]ot requiring claimants to verify the birth of a child or the placement of a child for adoption."  In other words, not requiring claimants to actually demonstrate the basic eligibility for the benefit they are claiming. At all.

The Task Force recommendation was actually more nuanced on this point.  It required in lieu of "verification" (i.e., submission of a birth certificate or adoption records) a sworn attestation of the event which, if it later turned out to be false, would be evidence of fraud.  Even still, the business community pointed out in its comments, appended at p. 14 of the Task Force report, "[p]roposed efficiencies should not ... come at the expense of accountability on the part of the agency of the claimant, nor should efficiencies create circumstances where the potential for fraud or gaming is enhanced."  The budget proviso, however, does not capture the task force's nuance or address the business community's concerns.

Another "efficiency" has to do with providing notice of taking this birth or adoption leave to one's employer.  Section 227(11)(a) (iv) contains a further uncodified budget proviso providing that employees must merely attest that written notice was provided to the employer from which leave is being taken as opposed to documenting the written notice.   But this does not amend, alter, or repeal RCW 49.86.030(6), derived from last year's bill, which requires as a basis of benefit eligibility the employee "[d]ocuments that he or she has provided the employer from whom family leave is to be taken with written notice of the individual's intention to take family leave...". 

In sum, the budget appropriates $6.2 million into an account in order for ESD to begin information technology development for the program, assuming legal authority to do so and using a set of efficiencies, some of which are apparently inconsistent with the law passed last year establishing the program framework.  But ESD has no authority to expend funds from that account, so L&I is again brought in to be the monetary middle-man. 

Apart from the obvious -- is this good government? -- reasonable people on either side of the policy debate might come up with questions like this:

1.  There is a current loan of $1.5 million between L&I and ESD for initial start-up, of which ESD has expended approximately $260,000 through this month.  In light of this appropriation, will that loan now be canceled and its principal and interest paid back out of the appropriation? 

2.  Will L&I and ESD commit to no further diversion of workers' compensation pension trust fund for this purpose, since it has nothing to do with providing pension benefits to injured workers?

3.  Do these budget provisos succeed in giving ESD legal authority to start implementing the program, given the failure of the underlying policy bill and despite existing unamended sections of RCW 49.86, derived from last year's E2SSB 5659, leaving the question of agency administration indeterminate?

4.  Should ESD go forward with "efficiencies" that do not capture the precise recommendations of the task force or the concerns of the business community, such as dispensing with verification requirements for claiming the benefit?  Does such an "efficiency," without more, encourage fraud or gaming?

5.  What does one make of "efficiencies" ESD is theoretically directed to implement which conflict with eligibility requirements enacted last year, existing as good law, and not amended or repealed this year, such as the requirement to document written notice to one's employer of the intent to take leave?

6.  What costs will $6.2 million cover?  While ESD's fiscal note for the failed implementation bill, HB 3305, estimates fiscal year 2007-09 administrative costs at about $6.2 million, that does not include a mechanism for implementing a tax-collection regime to provide benefits.  If that becomes a viable model for funding the paid benefit, ESD estimates an additional $6.6 million in start-up costs for a tax collection system and an additional 22 months in which to bring that system online.  If that system were approved in March, 2008, ESD states it would not be in place to start funding benefits until January, 2010.  To be clear:  $6.2 million buys some software, hardware, and IT development time, among other things.  But it does not provide a basis for providing benefits in the future and does not start that process.

7.  ESD's fiscal note that approximates $6.2 million in start-up this year also approximates over $70 million in further costs in FY 09-11.  Given the multi-billion deficit the general fund is headed into next biennium, where will this money come from?  Is this year's $6.2 million appropriation building a bridge to nowhere?

8.  Despite the requirement of E2SHB 5659, now codified at RCW 49.86.030, that benefits will be payable beginning October 1, 2009, and despite the promise of 5659's prime sponsor during floor debate on the budget that "benefits will begin, as enacted last year, in October of 2009 ... this is a policy that will be in effect in October of 2009," (Sen. Karen Keiser, D-Des Moines, here, at 1:40:50), is October 1, 2009 a realistic or prudent start date for this program?