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Friday, January 15, 2021
When saving money isn't really
By Keli'i Akina PhD @ 8:31 PM :: 980 Views :: Hawaii State Government, Labor, Taxes, COVID-19

When saving money isn't really

by Keli’i Akina, PhD, Grassroot Institute, January 15, 2021

Saving money now is going to cost our children — and our grandchildren — billions of dollars.

As part of the effort to address the state’s budget woes, intensified by the coronavirus lockdowns, Gov. David Ige last year suspended mandatory payments to the state’s Employer-Union Health Benefits Trust Fund (EUTF), which oversees the health benefits to all current and retired state and county employees and their dependents.

Like the state pension fund, the EUTF was underfunded for years, leading to a pile-up of debt that promised to disrupt our state finances and hurt the state’s credit rating. In 2013, the Legislature attempted to address this problem by passing a law that required both the state and counties to make annual payments to the EUTF, with the goal of paying down the unfunded liability by 2044.

It was a step in the right direction. Unfortunately, the good intentions of that law have run into the unforgiving reality of the COVID-19 crisis.

The budget surplus and rainy day fund are gone, and the state has had to borrow to pay its employees. In the effort to find a spare billion dollars or two, the governor used his emergency powers to waive the required annual EUTF payment for 2021 and has indicated that he will introduce legislation to suspend payments through 2025. 

The governor says that by avoiding those payments, he will free up about $1.78 billion for the state and $537 million for the counties. The exception here is Maui County, which has committed to making its full payment of about $13 million a year.

With a little fancy accounting footwork, the governor has “found” nearly $2 billion that can be reallocated for other uses.

Unfortunately, that $2 billion in “savings” is going to end up costing the taxpayers almost four times as much in the long term, because of all the add-on expenses that come with delaying those EUTF payments. As mentioned in a new report by Gabriel, Roeder, Smith & Company, those include increased interest as well as the payroll-growth costs. 

These are not small budget items. For the state, delaying the payments will add about $4.2 billion in extra costs, according to the GRS report. For the counties, it will be about $1.3 billion, according to an estimate by the Grassroot Institute of Hawaii.

Don’t forget that this is on top of the missing payments. If the state and every county except Maui skip their EUTF payments from 2021 to 2025, then over the next 30 years, we’ll be paying back about $7.8 billion — all so we can avoid paying about $2 billion now.

It is true that Gov. Ige and our leaders have a difficult task before them. Compared to making heavy cuts or furloughing state workers, delaying the EUTF payments must feel like an easy decision to make. But we have to beware of the long-term consequences of these “easy” decisions.

At stake is the long-term fiscal well-being of our state, as well as the stability of our public employees’ health benefits plan.

Short-term thinking about state finances helped create our current crisis. Our state’s tendency to keep spending, in good times and bad, helped deplete our surplus and left us vulnerable when an emergency hit.

It’s time that we learned from our past mistakes instead of passing them forward to our children. The next generation should not be handed a bill for billions of dollars in extra costs because we refused to tighten our belts. Rather than dropping this additional debt in the laps of our children and grandchildren, we should make some hard choices now.

It’s time to cut our spending, balance the budget and let go of the illusion that we are saving money by spending more in the long run.

E hana kākou! (Let's work together!)

Keli'i Akina, Ph.D.

President / CEO

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