The Washington State Department of Labor & Industries (L&I) today proposed its lowest workers’ compensation rate increase in five years.

The state agency is proposing a 2.5% increase, far lower than the 10% to 14% hike that would have occurred without state reforms to the system passed in the last legislative session.

“We recognize the impact of painfully slow economic growth, and this proposal balances that with the needs of the workers’ comp system,” L&I Director Judy Schurke said in a statement. “The reforms passed this year had the effect they were designed to – now and into the future.”

The legislative reforms are expected to save $1.1 billion over the next four years.

Over the past three years, L&I used $332 million from the State Fund reserves to partially fund the premiums for employers and workers, holding down rates during the recession. This has significantly reduced the reserves, which are critically low by industry standards.

Schurke called the proposed increase a “small step” toward rebuilding the state’s workers’ compensation reserves.

L&I adopted a 3.2% increase in 2008, a 3.1% increase in 2009, a 7.6% increase in 2010 and a 12% increase last year. Each of these rate increases was less than needed to cover the projected cost of claims that year, officials said.