There is a surplus in the Law Enforcement Officers’ and Fire Fighters’ (LEOFF) Retirement System Plan 1. (The plan is 149% funded and is closed to new members.)

There were various proposals this year to use the money. Former Gov. Inslee and the Senate Ranking Member would have transferred funds from LEOFF 1 to the general fund–state (GFS) to help address the operating budget shortfall. The Senate-passed budget would have merged LEOFF 1 with other system plans, then used the surplus to fund new benefits and reduce retirement contributions. The House-passed budget would have transferred the funds to the pension funding stabilization account (from which the funds could be easily accessed in the future). (I wrote about the proposals in detail here.)

Although these proposals all agreed that the surplus should be used, the operating budget that was passed by the Legislature does not do so. Instead, the budget requires the Select Commission on Pension Policy (SCPP) to “study and report on the tax, legal, actuarial, pension policy, and administrative implications” of the LEOFF 1 policies included in the Senate-passed budget (SSB 5085) and the House-passed budget (SHB 2034). A report is due to the Legislature by Jan. 9, 2026.

Fiscal notes for SSB 5085 and SHB 2034 estimated that the LEOFF 1 surplus is about $3.3 billion. That the SCPP report would be due just before the next legislative session suggests that the Legislature is anticipating using the funds next year.

Once the Legislature determines the most appropriate way to get the money out of LEOFF 1, legislators must carefully consider how to use it in a sustainable way. The $3.3 billion would be one-time money. For budget sustainability purposes, it should be used for one-time projects. Alternatively, in the event of a revenue shortfall, one-time money can be used as bridge funding until revenue returns to normal. (Not only does Washington not have a revenue shortfall, the Legislature just passed historically large new taxes.)

One of the causes of the budget shortfall this year was that the Legislature swept a restricted account in 2021 and transferred the money to an easily accessible account, from which the money was spent on general, ongoing programs. The resulting higher spending level could not then be sustained by existing resources.