Paid family and medical leave financial troubles have escalated quickly

By: Emily Makings
8:21 am
February 1, 2022

Late last week the Employment Security Department (ESD) revised upward its estimates of the amount of money that could be needed to address the expected cash deficit in the paid family and medical leave (PFML) program.

Gov. Inslee’s budget proposal would appropriate $82 million from the general fund–state (GFS) to cover any cash deficit in the family and medical leave insurance (FMLI) account. At the Jan. 26 meeting of the PFML advisory committee, ESD said they weren’t sure that would be enough. Now, ESD estimates that they could need between $125 million and $405 million to cover the cash deficit that is expected this spring. (The $125 million is their baseline projection; the $405 million is the pessimistic projection.)

Additionally, as I noted last week, ESD estimates that a solvency surcharge will be needed next year, which would put the total premium rate at 0.8%. To avoid levying the surcharge (and keep the premium at 0.6%), ESD estimates that the fund would need an additional $397 million in 2023.

Finally, ESD estimates it would need between $231 million and $511 million to create a one-month reserve for the program. It would need an estimated $442 million to $722 million to create a three-month reserve.

Before all this came out, Sen. Keiser had introduced SB 5873 to lessen the impact of the 2022 tax increases for unemployment insurance (UI) and PFML. As introduced, the bill would have reduced UI taxes and used the GFS to cover a portion of PFML premiums in 2022. (More on the original bill here.) The fiscal note for the original bill estimates that it would reduce UI revenues by $214.0 million in 2021–23 and by $29.4 million in 2023–25. It would have used $380.3 million from the GFS to reduce PFML premium taxes, without affecting the FMLI account balance.

Yesterday the Ways & Means Committee approved a substitute to SB 5873 that stripped it of the PFML provisions. (As passed, the substitute retained the original bill’s UI tax reduction.)

This developing situation provides an example of why it is important for legislators to reconsider the long-term care program (which has just been delayed for 18 months). In a 2019 policy brief comparing the PFML and long-term care programs, we wrote,

Protecting the long-term care insurance and paid family and medical leave revenues for their intended uses will be critical for the sustainability and affordability of the programs. It will also be critical to watch the tax rates that will be needed to pay out the promised benefits. As these are new programs that have minimal or no track records in other states, there is a reasonable chance of unexpected costs and outcomes.

At the time, neither program was expected to significantly increase state spending, since both programs are funded with payroll taxes. Now it appears that substantial state general funds could be needed to shore up the FMLI account even as the premium rate for the program is rising. It doesn’t bode well for the long-term success of either program.

Categories: Budget , Categories , Employment Policy , Tax Policy.