AP photo courtesy VOA News
AP photo courtesy VOA News

BY MALIA ZIMMERMAN – Senate Ways and Means Chair David Ige said in a recent email to Hawaii Reporter that the Hawaii State Legislature ” recognizes the importance of resolving the unfunded actuarial accrued liability of the Employees’ Retirement System of the State of Hawaii (ERS).”

He was responding to a media inquiry about the recent Institute for Truth in Accounting report that named Hawaii a “sinkhole state” and said Hawaii is in the 47th worst financial position of all 50 states.

The report said that while Hawaii has $19.5 billion worth of assets, just $3.9 billion are available to pay $15.4 billion of bills as they are due.  The non-partisan, non-profit institute said each Hawaii taxpayer’s financial burden is $25,000.

“State officials say their budgets are balanced but do not include employee pension and healthcare obligations in their calculations,” stated Sheila Weinberg, Founder and CEO of the Institute.  “Unlike the federal government, states can’t ‘print money’ to cover costs and shore up their financial conditions.”

The Institute’s report, entitled “Financial State of the States” Report, looked at the Comprehensive Annual Financial Report (CAFR) for each state to offset assets against liabilities.

This is the first time that a detailed analysis of pension and healthcare liabilities has detailed each state’s actual obligations.

Ige said while he is unsure of how the Institute compiled its data, “the State has taken steps to resolve this liability, which at its last official report for June 30, 2010 stood at $7.1 billion.”

“During the 2011 regular session the Hawaii State Legislature addressed the funding shortfall of the ERS through the passage and enactment of Act 163, SLH 2011.  This state law reduces the amount of pensions for new employees beginning on July 1, 2012 as well as increases the age at which these new employees can begin receiving their pensions.  These changes combined with increased employer and member contributions and placing a moratorium on benefit enhancements (through Act 29, SLH 2011) are important steps in resolving the funding issues of the ERS over the next several decades.  Monitoring the outcomes of these and future legislative initiatives by the ERS will continue to ensure the future stability and viability of the ERS,” Ige said.

He added that “comparisons of Hawaii’s unfunded liabilities with that of other states may not account for the fact that Hawaii’s ERS and Employer-Union Health Benefits Trust Fund (EUTF) assume the liability for many employee groups not covered by most other states under a single fund or system.”

These include teachers, firefighters, police officers, and other county employees, he said.  “Nonetheless, the legislature looks forward to addressing the State’s unfunded liabilities, notably that of the EUTF, in upcoming legislative sessions.” Ige added.

In addition to Hawaii being named a “sinkhole state,” the Institute also identified Connecticut, New Jersey, Illinois and Kentucky in the top 5, each with a per taxpayer burden more than $23,000.

Wyoming, North Dakota, Nebraska, Utah and South Dakota were rated as “Sunshine States’, because a per taxpayer’s surplus or minimal per taxpayer’s burden exists in these states.

In response to this report, Kalbert Young, director of the Hawaii state Department of Budget and Finance, told Hawaii Reporter that “the State is aware of its metrics and statistics of its liabilities relative to other states.  The Administration has been advocating for pro-actively dealing with the structural financial problems that challenge the future viability of State systems – like, the unfunded liabilities of its pension system and health insurance trust fund.  These are issues that have been only minimally addressed for decades so the challenge and degree to address them is going to be severe, but they can not and should not be ignored.  We are developing a pro-active financial plan to address these issues that would put Hawaii back on a trajectory comparable to other states.”

Sen. Sam Slom, R-Hawaii Kai to Kahala, said “This is yet another in a continuing series of national organizations critical of Hawaii’s fiscal policies. No matter how many times our majority party elected officials deny it, Hawaii has become a “sinkhole” state with plenty of sewage. Our $21 billion two-year budget, passed in May, 2011, is not balanced as required by our Constitution. Our state Employees Retirement System is underfunded by a true $15-$18 billion, our state employees health plan, EUTF, is underfunded by an estimated $8 billion, our infrastructure is badly broken, and our emergency reserve special funds have all been raided along with new taxes passed this year. Moody’s already downgraded Hawaii’s credit. We have not taken steps to prepare for an improved business and investment climate because of the economic denial of our leaders even though Hawaii has many opportunities to emerge from the fiscal sinkhole.”

House Republican Caucus Leader Gene Ward, said: “We applaud the Institute for Truth in Accounting for pointing out what Republicans have been saying for years.  That is why we have issued an alternative budget each year, available online at www.hawaiistatebudgetonline.com. The Democrat-controlled Legislature has made the sinkhole deeper by enacting budgets that spend every tax dollar we collect. ”

House Democratic leadership did not respond to multiple inquires about this report.

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