Dueling Budgets

Dueling Budgets

Merger of LEOFF 1 with any other system did not appear in either the Senate or House proposed budgets. While it now appears we are safe for this legislative session it is important to remember that the session is far from over.  Additionally, there is a significant disparity between the two budget proposals.  While neither the House nor Senate budgets attack LEOFF 1 directly, LEOFF 2 was not spared in the Senate budget.  Just the fact that these proposal were made is a significant warning sign and particularly for LEOFF 2. The Senate Budget passed the Senate and is now in the House for consideration.  He House Budget has not passed out of committee or gone to the floor.

Senate Budget

On March 23, 2017 the Senate passed their budget proposal.  See 1st Substitute – ESSB 5048. The Senate budget did take a rather severe swipe at LEOFF 2 by removing the state contribution to the pension plan.  The Senate budget calls for a change to the LEOFF 2 50/30/20 pension contribution rate split which is in statute. In the future all employers would make a 50% pension contribution, with the exception of Fire Districts who would be exempt, and employees would contribute the remaining 50%.

50/30/20 pension contribution structure has been considered by LEOFF 2 organizations to be a Bakenhaus right but that has never been tested in court. Members must prove injury to prevail in legal action. Pension benefits are underwritten by the State so Bakenhaus could be an issue. This is a possible impermissible policy change in the budget and would require a new bill.  This position was asserted in testimony by Steve Nelson during the latest merger study and at least alluded to during the previous period when the LEOFF1/LEOFF2 merger was under consideration.

Under the Senate proposal the 50/50 split would be permanent.

This bill passed in the Senate.  See http://app.leg.wa.gov/billsummary?BillNumber=5048&Year=2017 for further information and to download a copy of the bill.  (http://lawfilesext.leg.wa.gov/biennium/2017-18/Pdf/Bills/Senate%20Bills/5048-S.E.pdf)

The bill states, “Except for fire protection districts under Title 52 RCW, during the 2017-2019 fiscal biennium, the employer shall contribute both the employer and state shares of the cost of the retirement system for any of its employees who are members of the Washington law enforcement officers’ and firefighters’ retirement system. It is the intent of the legislature that this policy will be continued in subsequent biennia.”

The bill also says, “It is the intent of the legislature to fund any distribution in 2019 dedicated to the local law enforcement officers’ and firefighters’ retirement system benefits improvement account through alternate means, which may include transfers from the law enforcement officers’ and firefighters’ plan 2 retirement fund.”

It then says, “Employers commonly provide emergency services or security at venues, sporting events, etc. LEOFF 2 members who work these duties receive compensation that is included in the member’s basic salary. This compensation is pensionable and therefore requires retirement contributions be paid by all parties (member, employer and state). During fiscal years 2018 and 2019, when an employer charges a fee or recovers costs for this type of work, the employer must cover both the employer and the state contributions.”

It should be pretty clear that the cities and counties will not be happy about having their pension contributions increased from 30% to 50%.

House Budget

In contrast the House Budget proposal does not impact either LEOFF 1 or LEOFF 2.

The House released their 2017-2019 Omnibus Operating Budget (PSHB 1067) on March 28th.  Download a copy of the bill at  http://lawfilesext.leg.wa.gov/biennium/2017-18/Pdf/Bills/House%20Bills/1067.pdf

The following is a summary of issues that impact LEOFF Plan 2:

1. Contribution Rates: The budget fully funds the rates adopted by the LEOFF Plan 2 Retirement Board for the 2017-19 biennium
2. Merger (not included in budget proposal): A merger of LEOFF Plan 1 with either TRS Plan 1 or LEOFF Plan 2 is NOT included in this House budget proposal.
3. Alternate Revenue: The $25 million payment to the LEOFF Plan 2 Benefit Improvement Account scheduled for September 30, 2017 is canceled.  Intent language is added that any future distributions to the Benefits Improvement Account may be made via a transfer from the LEOFF Plan 2 trust fund.
4. Reimbursement for Special Events Contributions:: Employers commonly provide emergency services or security at venues, sporting events, etc. LEOFF 2 members who work these duties receive compensation that is included in the member’s basic salary. This compensation is pensionable and therefore requires retirement contributions be paid by all parties (member, employer and state). During fiscal years 2018 and 2019, when an employer charges a fee or recovers costs for this type of work, the employer must cover both the employer and the state contributions.

You will note that the House Budget is significantly different from the Senate Budget as to how it addresses LEOFF 2 issues.  Fortunately neither budget proposes an pension system merger and neither would impact LEOFF 1.

All of these differences will have to be negotiated once the House passes their budget.  That means that there remains the chance that some attack on LEOFF 1 could surface during the negotiations. A rumor is circulating is claiming there is a LEOFF 1/LEOFF 2 merger bill being developed in the House.  This cannot be confirmed and we are not comfortable with that report.  None-the-less we will need to remain vigilant as the legislative session still has a long way to go.  In fact many are predicting there will be a special session.