Gov. Jay Inslee’s $300 million proposal is a good starting point for badly needed reforms of the state’s mental-health system.

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FOR all the partisan fault lines in Olympia, there is bipartisan agreement that Washington’s mental-health system needs help. Gov. Jay Inslee and the Legislature have confronted one red flag after another over the past three years — blistering court rulings, embarrassing national rankings, a federal takeover of Western State Hospital — with emergency spending and a whiff of desperation.

The system needs a fix, and not just a plan drawn up in crisis. Inslee has started the Legislature down that road by releasing a $300 million, two-year mental-health-reform proposal. The plan is thoughtful and the scope is impressive, both in dollars and systemic reforms.

It’s a good starting point for reforming a vital, underfunded and dysfunctional state service. Although the Legislature will be consumed with education funding come January, it can walk and chew gum at the same time. Fix mental health too.

Most of the frenetic energy for mental-health reform has been at Western State Hospital, and for good reason. Grossly understaffed and badly run, it became a $100 million-plus money pit. The federal government is basically running Western State, and might actually pull funding if the hospital is not working by April.

One in six patients discharged from Western State Hospital are back within six months, according to new state data; one in every seven are arrested or homeless. The public expects better outcomes from one of its most expensive services.

The Inslee plan imagines a different future for Western State — smaller, focused on mentally ill criminal defendants. It envisions nine mini-state hospitals across the state to treat the sickest patients who are held for involuntary treatment, and more psychiatric wards in community hospitals.

It’s a good idea; closer-to-home treatment is better. The big institutional model of Western State is antiquated.

But Inslee’s plan lacks an important funding reform proposed last year by the late Sen. Andy Hill, the Republicans’ budget guru. He wanted to give the state’s county-based treatment networks financial incentives to keep people out of Western State.

Hill, who died of cancer in October, won’t be in Olympia to champion it. Someone else should. More state spending must come with fundamental reforms.

For all the focus on the state hospital, the smartest investments the state could make are in outpatient treatment. In fact, just two-thirds of patients discharged from Western State get outpatient care within seven days, creating a dysfunctional feedback loop.

The best bang-for-the-buck return the state could make is in so-called “supportive housing” — envision an apartment with treatment staff on the ground floor — for people with mental illness.

A big study in New York found homeless people with mental illness spent dramatically fewer days in shelters, psychiatric hospitals and jail after landing in supportive housing, saving taxpayers tens of thousands of dollars per person.

Inslee’s plan adds 356 beds statewide, dedicated for people leaving hospitals. It should be bigger. A larger network of safe, therapeutic housing would help the Puget Sound’s homeless crisis and the state’s hospital crisis.