Monday, March 18, 2024
Hawai'i Free Press

Current Articles | Archives

Sunday, February 19, 2012
Wishing We Didn't Have to Pay the Piper
By Lowell L Kalapa @ 2:15 PM :: 5753 Views :: Energy, Environment

by Lowell Kalapa, Tax Foundation of Hawaii

Although most taxpayers are immersed in the daily struggle of trying to make ends meet in a sluggish economy, one of the biggest fears of government observers in Hawaii is the looming elephant in the room which is the unfunded liabilities of the state and county retirement system and the related health benefits for current and future public employee retirees.

The combined unfunded liabilities of both systems could reach as high as $20 billion, not millions but billions of dollars. That is more than the state’s biennial budget and the number will grow larger as more and more benefits are accrued by the state’s and counties’ active employees. But why, you may ask, is the state retirement and health system way underfunded?

Indeed there are a variety of reasons for the chasm that exists between a sound and healthy retirement and health system for public employees and what is lurking in the shadows as the current state of affairs. The problem has its genesis in the fact that when the state constitution was amended, collective bargaining was granted to public employees permitting public employees to bargain for compensation on par with their private sector counterparts. However, the retirement benefits, including health care, were not adjusted to be on par with those granted private sector employees. Instead, the generous benefits granted public employees insofar as retirement benefits were continued even after collective bargaining was granted.

The problem was that the retirement benefit plan was predicated on the much lower salaries that were afforded to public employees prior to collective bargaining. Thus, when new base salaries were negotiated under the collective bargaining law, they rivaled, if not bettered, those salaries paid to their private sector counterparts. As a result, those more generous salaries then were used to calculate the retirement benefits of public employees which utilized the number of years worked and the highest three years of pay in the formula to calculate the retirement benefit. It soon became evident that if the formula was not changed, the rising salary base would outstrip the projected earnings of the state retirement system.

As a result, lawmakers were asked in the early 1980’s to change the state retirement system from a “contributory” to “non-contributory” system allowing the change in the multiplier of the formula that was used to determine retirement benefits.

Although any person joining the public sector workforce after July 1, 1984 is a non-contributory member of the state’s retirement system, the bulk of the baby-boomers in the public workforce are now beginning to retire, putting a strain on the benefits and causing alarm that the unfunded liabilities will soon come due. Everyone who watches state government acknowledges that sooner or later, the state must begin paying down those unfunded liabilities. Realizing that lawmakers haven’t had the political will to either reduce benefits for current or future public retirees nor have the willingness to set aside annual contributions, one lawmaker has proposed a constitutional amendment that would require that in any one year when there is surplus of general funds at the end of the fiscal year, that the surplus amount be paid to offset these unfunded liabilities of the state retirement system and health benefits.

At first blush, this seems like a prudent approach to the problem, taking any surplus funds left over in the till and using those funds to pay down this looming debt. But wait, what that constitutional amendment is saying is that these unfunded liabilities are of such a low priority that they should be paid only if there is left over money, money that is available after all other state programs and services are paid for in the state budget. It is somewhat akin to having one’s credit card company tell you that, oh by the way, if you have any money left over after you pay all your household bills, you should pay off your credit card balance.

Of course, in the case of the credit card company, they just charge you interest if you don’t pay off the balance, but in the case of the state’s retirement system and retiree health benefits, those will have to be paid regardless of whether or not there is a surplus at the end of the fiscal year. Before we reach the bottom of the barrel, taxpayers should expect lawmakers to fully fund those liabilities as a regular part of the state’s budget and not just when there are some funds leftover. To do otherwise is irresponsible and totally unacceptable.

---30---

Links

TEXT "follow HawaiiFreePress" to 40404

Register to Vote

2aHawaii

808 Silent Majority

Aloha Pregnancy Care Center

AntiPlanner

Antonio Gramsci Reading List

A Place for Women in Waipio

Ballotpedia Hawaii

Broken Trust

Build More Hawaiian Homes Working Group

Christian Homeschoolers of Hawaii

Cliff Slater's Second Opinion

DVids Hawaii

FIRE

Fix Oahu!

Frontline: The Fixers

Genetic Literacy Project

Grassroot Institute

Habele.org

Hawaii Aquarium Fish Report

Hawaii Aviation Preservation Society

Hawaii Catholic TV

Hawaii Christian Coalition

Hawaii Cigar Association

Hawaii ConCon Info

Hawaii Debt Clock

Hawaii Defense Foundation

Hawaii Family Forum

Hawaii Farmers and Ranchers United

Hawaii Farmer's Daughter

Hawaii Federalist Society

Hawaii Federation of Republican Women

Hawaii History Blog

Hawaii Homeschool Association

Hawaii Jihadi Trial

Hawaii Legal News

Hawaii Legal Short-Term Rental Alliance

Hawaii Matters

Hawaii's Partnership for Appropriate & Compassionate Care

Hawaii Public Charter School Network

Hawaii Rifle Association

Hawaii Shippers Council

Hawaii Smokers Alliance

Hawaii State Data Lab

Hawaii Together

HIEC.Coop

HiFiCo

Hiram Fong Papers

Homeschool Legal Defense Hawaii

Honolulu Moms for Liberty

Honolulu Navy League

Honolulu Traffic

House Minority Blog

Imua TMT

Inouye-Kwock, NYT 1992

Inside the Nature Conservancy

Inverse Condemnation

Investigative Project on Terrorism

July 4 in Hawaii

Kakaako Cares

Keep Hawaii's Heroes

Land and Power in Hawaii

Legislative Committee Analysis Tool

Lessons in Firearm Education

Lingle Years

Managed Care Matters -- Hawaii

Malama Pregnancy Center of Maui

MentalIllnessPolicy.org

Military Home Educators' Network Oahu

Missile Defense Advocacy

MIS Veterans Hawaii

NAMI Hawaii

Natatorium.org

National Christian Foundation Hawaii

National Parents Org Hawaii

NFIB Hawaii News

No GMO Means No Aloha

Not Dead Yet, Hawaii

NRA-ILA Hawaii

Oahu Alternative Transport

Obookiah

OHA Lies

Opt Out Today

OurFutureHawaii.com

Patients Rights Council Hawaii

PEACE Hawaii

People vs Machine

Practical Policy Institute of Hawaii

Pritchett Cartoons

Pro-GMO Hawaii

P.U.E.O.

RailRipoff.com

Rental by Owner Awareness Assn

ReRoute the Rail

Research Institute for Hawaii USA

Rick Hamada Show

RJ Rummel

Robotics Organizing Committee

School Choice in Hawaii

SenatorFong.com

Sink the Jones Act

Statehood for Guam

Talking Tax

Tax Foundation of Hawaii

The Real Hanabusa

Time Out Honolulu

Trustee Akina KWO Columns

UCC Truths

US Tax Foundation Hawaii Info

VAREP Honolulu

Waagey.org

West Maui Taxpayers Association

What Natalie Thinks

Whole Life Hawaii

Yes2TMT