Fiscal sanity or risky gamble? Allowing state to invest WA Cares Fund in stock market

(The Center Square) – Proponent Heather Weiner and opponent Bob Hasegawa, a state senator representing the 11th Legislative District in King County, recently debated Senate Joint Resolution 8201, a proposed constitutional amendment to allow the WA Cares Fund to be invested in a broader range of assets, including stocks.

WA Cares is a state program that provides a public long-term care insurance benefit, funded by a 0.58% payroll deduction from employees. It began making contributions in 2023 and will start paying benefits in 2026 to eligible residents who need help with activities of daily living. The full benefit is $36,500 in 2026 and is set to be adjusted for inflation annually.

The new payroll tax has accumulated $2.5 billion for the long-term care program.

The state constitution currently restricts most public funds – taxpayer dollars – from being invested in private stocks or equities.

The thinking behind SJR 8201 is that investing in the stock market could yield higher returns, helping to keep WA Cares sustainable.

“8201 addresses a constitutional provision that was passed in 1889,” Heather Weiner with Approve 2081 told the audience at Tuesday’s debate at the University of Washington. “That’s a really old, outdated part of the constitution that specifically says we can’t invest funds in anything but government bonds and treasury bills without an amendment. And so many funds have already passed their own constitutional amendments to allow them to be invested in more diverse equities. So, this amendment, 8201, would bring the long-term care trust fund … into alignment with all those other funds.”

The program is designed for all working Washington residents to access long-term care benefits, if necessary, regardless of age. Anyone who contributes to the fund can earn benefits in the event of illness or accident.

Weiner continued: “Measure 8201 takes the funds to fund those kind of things that we all are going to need – 70% of us are going to need – and allows it to be invested in a safe and risk-averse way, so that we can grow those funds and not allow it to be raided by the government or by lawmakers…”

She pointed to the benefits of passing SJR 8201, which would allow the Washington State Investment Board to invest WA Cares Fund money in a diversified mix that includes stocks and other equities. This is similar to how the WSIB already manages other state funds, such as public pensions, with strong fiduciary standards

“If we approve 8201, the projections show that the fund will grow by at least $67 billion over 50 years,” Weiner said. “And more money means what? More money means we can keep premiums low for taxpayers, and we might be able to grow benefits more for people over that time.”

Hasegawa is wary of investing taxpayers’ money in the stock market as part of addressing what he calls the “silver tsunami” in Washington state – that is, the aging of the baby boomer generation and its broad impact on the state’s economy, workforce and social services.

“You cannot guarantee what the stock market is going to be doing in the future,” he said.

“I think it’s throwing the protections that the founders of our constitution 136 years ago that has served us so well for so long to protect our tax dollars,” he added. “It’s throwing that out for the proverbial two birds in the bush – the bird in the hand, versus the two in the bush.”

The regular fluctuations of expansion and contraction of the stock market could have detrimental effects on public investment, he noted.

“If Wall Street does not meet expectations – inevitably, there’s going to be a crash; we all know that,” Hasegawa said. “The economy is cyclical, and the state investment board … presumably will be managing these funds if this constitutional amendment is adopted. This is outside the state investment board’s control.”

He pointed to the “Great Recession” of 2008-09 and the fact it took more than five years to recover from that economic downturn.

Hasegawa went back even further in history to make his point.

“Do you know it took 25 years to recover from the Great Depression? And if you include inflationary costs, it took really 30 years to recover from the Great Depression,” he said.

The WA Cares Fund is already invested in safer, though lower-return, securities, such as municipal bonds, an approach Hasegawa said he prefers for its stability over market speculation.

He also noted that Washington voters rejected a similar proposal in 2020, indicating a public preference for secure investments over riskier stock market options.

Washington voters will have the final say on SJR 8201 when they cast their ballots in the Nov. 4 general election.