She Said What?

January 16, 2013

In yesterday’s final State of the State speech, Governor Gregoire spent 44 minutes summarizing her struggles and accomplishments leading the state of Washington for during the last tumultuous eight years.

When she finally got to the state’s business climate, Gregoire bragged that, “…over the past eight years, we had little or no increases in workers’ comp premiums.” 

This simply isn't true.  

The average workers’ compensation rate increases from 2005 through 2012 have increased more than 27%.  In all fairness, since workers’ compensation rates are set the previous year, the rates for 2005, the year Gregoire took office, were determined in 2004.   So letting her off the hook for 2005’s 3.7% increase still leaves Gregoire responsible for a nearly 24% increase between 2006-2013.   

I don’t think many business owners would classify a 24% tax increase as a “little or no increase.”   For comparison, workers’ compensation rates in Oregon decreased 9.8% and rates in Idaho decreased 5.3% between 2006-2013. 

Most disturbing is the fact that Washington’s 24% rate increase was much lower than the state’s own actuaries said it needed to be to keep the system solvent.  According to state officials, between 2006-2013, workers’ compensation “indicated rates” needed to increase 49% in order for the state-run workers’ compensation system to break-even.   Instead, Gregoire opted to use excess funds in the system’s contingency reserve fund to “buy down” the rates to a 24% increase, keeping rates artificially low and masking the fact the system is failing.

Of course, this ploy isn’t exclusive to Gregoire’s Administration.  Underscoring the inherent problem with the state’s monopoly workers’ compensation system, L&I officials have been dipping into the contingency reserve almost every year since 2000 to artificially avoid the tax hikes that are inherent in a state monopoly system.

And while business owners were spared a workers’ compensation tax hike in 2012 and 2013, the future isn’t quite as rosy.  The state Department of

Labor & Industries (L&I) has adopted a framework of rate increases beginning in 2014 that will translate into an annual rate increase of up to 5.5% every year for the next decade.  In all, the plan constitutes a significant, double-digit tax increase on small businesses over the next decade—close to 40%.   

A 24% increase over the past eight years with another 40% over the next ten years--hardly a legacy to brag about.