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Cash crunch persists for WA’s paid family leave program

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Cash crunch persists for WA’s paid family leave program

May 15, 2024 | 6:32 pm ET
By Laurel Demkovich
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Cash crunch persists for WA’s paid family leave program
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Washington’s Paid Family and Medical Leave program has a popularity problem. 

More people are applying for its benefits, but the state is running short of money to pay for them. 

The program, launched in 2020, allows people to take paid time off from work if they have a serious health condition, if they’re caring for family members, or if they have a new child. A tax that workers and employers each pay a share of covers the program’s cost.

In 2022, a financial analysis showed that the program would run a deficit by the end of that year without more state funding or a premium increase. At the time, the tax rate was 0.6%. The state upped the rate to 0.8% in 2023. But it lowered it again in January this year to 0.74% – in part because of $200 million the Legislature shifted into the program. 

The state’s Employment Security Department says the program’s finances will likely stabilize in the next few years. But this year’s premium decrease could slow progress. 

“Perhaps reducing the rate this year could’ve been avoided, and we would’ve been in a better place,” Sen. Karen Keiser, D-Des Moines, told the Senate Labor and Commerce Committee on Tuesday. 

In the program’s first year, 112,737 people were approved for benefits, according to data from the Employment Security Department. Since then, the number of people receiving benefits nearly doubled to 210,268 people in 2023. 

Last year, the program paid out about $1.5 billion, up 24% from the previous year. 

Alison Eldridge, leave and care assistant director at the Employment Security Department, told the committee that a deficit could happen as soon as October of this year, and it may be more severe than was previously projected. 

The tax rate was on track to increase slightly this year. But the rate is set using a formula that factors in the program’s financial balance – the lower the balance, the higher the rate has to go, and vice versa. 

When the Legislature plopped $200 million into the account it artificially pushed the tax rate lower, explained Caitlyn Jekel, the department’s government affairs director. This will likely lead to a slower stabilization of the program’s finances, Jekel said.

“We do expect this to normalize and even out, but dropping that rate in 2024 is going to result in greater volatility as we build up to the 2025 rate increase,” she added.

Senators expressed concerns about why the program’s cost keeps rising. 

Department officials blamed higher benefit costs on an increase in approved applicants and an increase in wages, which determine how much money a person may get from the program. From 2022 to 2023, approved applications increased by 14% and the average weekly payment to eligible workers increased by 7%.

Keiser suggested there’s a disconnect between growth in what the state’s paying and the increase in how many people are receiving the benefits. 

She encouraged the department to look closer at what is driving up costs. 

As lawmakers seek ways to stabilize the program’s finances more quickly, Sen. Steve Conway, D-Tacoma, pointed out that other similar programs in other states, like California and Oregon, have a higher premium rate, closer to 1%, and said the state should consider finding a way to keep a reserve within the program in case of future deficits.

“It’s a very popular program, and I wonder if we have structured it properly to make sure we don’t have these funding crises every other year,” he said.