Contract inflation and statewide cost allocations pass; health-insurance increase and employee compensation debated but not adopted

The Joint Finance-Appropriations Committee advanced several statewide budget maintenance decisions, approved some items and deferred others following extensive debate on employee health insurance and pay.

Contract inflation

Keith Bybee presented a package of ongoing contract inflation requests. Representative Miller moved to include the governor’s FY2026 recommendation to adjust operating and capital outlay for ongoing contract lease inflators and similar contractual increases, a package totaling $3,356,400 across fund sources. The motion was seconded and passed on a recorded vote of 20–0.

Statewide cost allocation

Bybee next described statewide cost-allocation adjustments (agency billings for services other agencies provide), including changes to the attorney general billing, legislative audit, state controller and treasurer fees, risk management, and the office of information technology services. Co-chair Harmon moved the governor’s FY2026 recommendation for the statewide cost allocation adjustments. The package passed by unanimous recorded vote, 20–0.

Health insurance and reserve discussion

The committee then considered personnel benefit cost decisions that include health insurance per eligible full-time position. Bybee outlined two competing figures: the Economic Outlook and Revenue Assessment Committee recommendation that would set the health-insurance base at $13,960 per eligible FTP (a lower number that staff said would draw reserves down), and the governor’s recommendation of $14,300 per eligible FTP.

Bybee and staff presented Milliman actuarial projections showing the total plan cost for FY2026 near $482,000,000 under either option. Under the CEC recommendation of $13,960, Milliman projected the contingency reserve would fall to about $51,600,000 (the statutory 10% minimum). Bybee said the governor’s $14,300 option would leave roughly $61,400,000 in reserves, “another $10,000,000 of cushion.”

Laurie Wolf, administrator for the Division of Financial Management, and Faith Knowlton, administrator for the Division of Insurance and Internal Support, told the committee that maintaining a 10% contingency reserve is a contractual requirement with the carrier and that falling below that threshold can prompt a risk charge from the carrier. Knowlton said the carrier-provided reserve percentiles reflect a roughly 50% chance of meeting the 10% contingency at the lower funding level.

Two competing motions

Representative Miller moved the governor’s recommendation ($14,300 per eligible FTP), a motion seconded by Senator Woodward. Representative Furness offered the substitute motion to adopt the CEC recommendation ($13,960 per eligible FTP). The substitute motion was seconded by Senator Cook.

Votes on the health-insurance motions failed to produce the committee’s required majority in both chambers. The substitute (CEC) motion failed on a combined 9–11 tally; the governor’s motion later failed to get a Senate majority (the combined vote was 14–6 but did not meet the committee’s practice of securing a majority in both chambers). Committee members debated risk tolerance, the size of the reserve (about $80.5 million on hand), and the prospect of higher premium increases in a subsequent year if reserves were run very low.

Change in employee compensation (CEC)

Committee members also debated a broader change-in-employee-compensation package with multiple competing motions. The proposals included a broadly applied $1.55 per hour increase for permanent state employees (the CEC recommendation) and an alternate that combined a $1.55 or 4% increase by merit, plus market and targeted increases for troopers, health-care nurses and IT/engineering staff.

Several members urged a merit-based and market-focused approach to keep skilled employees in high-demand positions; others said a flat-dollar approach provides larger percentage increases for lower-paid workers and helps retention at the bottom of the pay scale. That debate was lengthy and produced a number of substitute and amended motions.

Withdrawal and postponement

After extended discussion and staff changes to several motion texts, committee leaders and sponsors agreed to withdraw the competing change-in-compensation motions and to withdraw a pending substitute so staff could prepare corrected ballot language. Chairman Groh and others said the committee would proceed with maintenance-budget items the next day and take more time to resolve compensation and health-insurance decisions. Representative Furness and Senator Cook formally withdrew their motions by unanimous consent and the committee adjourned, leaving the compensation and health-insurance topline issues unresolved.