Old Fund needs to be restored

The chickens are coming home to roost in the state work-comp program's "Old Fund."

In one sense, there is nothing new about the pending liability in the Old Fund - it has existed since 2003 when the Legislature, at former Gov. Judy Martz's behest, tapped $23 million from the fund to balance the budget. In fact, the State Fund's board of director's sent Martz a letter at that time warning that money for the Old Fund could run out as early as 2007.

You would think, therefore, that someone would have been concerned during the intervening four years about replenishing the fund. Indeed, when we had a $1 billion surplus in the last session, $23 million would have been a drop in the bucket.

But other priorities prevailed, and the Old Fund was left to tick-tock toward inevitable crisis.

Now, however, the problem has come to the fore. At a recent legislative finance committee meeting, lawmakers were updated on the topic once again: the Old Fund is currently underfunded by about $32 million and by 2012, it is expected to run out of money, with obligations to hundreds of active claims then being unfunded.

Gov. Brian Schweitzer is right in saying it's an issue that needs to be addressed. His preferred approach is to chip away at it with cash infusions over the next few years, similar to the manner in which the state is addressing financial deficits in public pension funds.

We prefer that the Legislature step forward and pay back the $23 million it borrowed in 2003 as a first step, then do whatever is necessary to make sure that the fund stays solvent for the long-term.

It's interesting how the problem has taken shape. The state workers' compensation system was melting down in the 1980s, and as a remedy the 1989 Legislature reestablished it as a quasi-private company. The following year, in a special session, the legislature separated existing claims as the "Old Fund" and created a new fund for future claims to be managed separately.

The old fund's liability of $500 million was covered through the sale of bonds and a new payroll tax. It appeared to be in good shape for a decade, until the state was faced with a $300 million deficit in 2003, prompting Martz to transfer $23 million from the Old Fund to the state's general fund.

Adding to the $32 million shortfall were the unforeseen, increasing medical costs that have arisen in meeting the obligations of 959 active claims. The people behind those claims are living longer with the help of advanced - and more expensive - medical care. The oldest claimant is 97 years old, but the youngest is 38, leading Montana State Fund managers to calculate that the Old Fund will be active for at least another 20 to 30 years.

Now that the Old Fund liability has risen in priority ranks, the state needs to take action. The good news is that the new fund for claims filed after 1990 is in sound financial shape, but our old obligations can't just be swept under the rug.