Editor’s Note: Because Hawaii’s State budget is projected on a “cash basis” rather than an “accrual basis”, future pension obligations are not properly included. As a result, the state’s debt burden and budget deficit are grossly understated. Under an “accrual basis” accounting system, future obligations such as pension liabilities must be accounted for in advance.
HAWAII: The State Does Not Have the Money to Pay Bills
- Hawaii has $19.6 billion worth of assets, but most of these assets are not available to meet their obligations.
- More than $13.2 billion is infrastructure like roads, bridges and parks, which cannot realistically be used to pay bills. The use of $2.4 billion of the assets is restricted by law or contract.
Hawaii is in Financial Jeopardy.
- Only $3.9 billion of the State's assets are available to pay $22.1 billion of bills as they come due.
- Almost $18.2 billion of State employees’ retirement and other costs have been pushed into the future, and thus onto our children's and grandchildren's backs.
- Each taxpayer's share of the financial burden is $39,600.
Data is derived from the State of Hawaii's June 30, 2009 Audited Comprehensive Annual Financial Report and Retirement Systems’ Actuarial Reports
- Assets $19,555,468,000
- Less: Capital Assets $13,244,809,000
- Restricted Assets $2,381,139.000
- Available Assets to Pay Bills $3,929,520,000
- Bills $22,122,452,000
- Money Needed to Pay Bills $18,192,932,000
- Each Taxpayer’s Financial Burden $39,600
So-Called “Balanced” Budgets Ignore True Costs
The State of Hawaii reported liabilities of only $10.2 billion. IFTA’s detailed analysis discovered that retirement liabilities of $11.9 billion were unreported by the State. When these liabilities are included, the State’s bills total $22.1 billion.
- Reported Liabilities $10,218,595,000
- Unreported Retirement Liabilities $11,903,857,000
- Total $22,122,452,000
Hawaii’s statutes require the legislature to pass a balanced budget. One of the reasons Hawaii is in this precarious financial position is State officials use antiquated budgeting and accounting rules to determine payroll costs. Since retirees’ health care benefits are not immediately payable in cash, Hawaii’s politicians ignore these payroll costs when calculating “balanced” budgets. As a result, the State set aside only 41 cents to pay for each dollar of these promised benefits.
Truthful accounting would include the portion of retirement benefits employees earn every year they work in payroll costs. Accurate accounting requires all real and certain expenses be reported in the State’s budget and financial statements when earned, not when paid.
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Why was the 2009 Hawaii CAFR issued 16 months later?
Institute for Truth in Accounting Jan 20, 2011
The Institute’s 50 State Study uncovered it took Hawaii 477 days (almost 16 months) to issue its 2009 Comprehensive Annual Financial Report (CAFR). The June 30, 2009 CAFR was issued on October 20, 2010.
Timely production and release of financial information is one of the cardinal requirements of system of financial reporting and control. Each state’s CAFR provides information that is essential to future financial decisions. For this information to be useful, it must be understandable, reliable and relevant. To be relevant, this information must be available on a timely basis.
The Association of Government Accountants (AGA) states that audited financial information is “essential,” but a delay in producing CAFRs means that the information they contain—no matter how transparent—is fundamentally “ancient history”. The key to accountability is for citizens to understand the activities their governments intends to take. The place to do this is in the budgeting process and with the budget documents. The Executive Budget, the Appropriated Budget and the Non-Appropriated Budgets are the expression of the state’s intentions and are subject to change. Information provided in CAFRs issued late can’t be used in the budget cycle.
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Basics: Cash vs Accrual explained
MORE INFO: Institute for Truth in Accounting
Recommendations: The Truth About Balanced Budgets The authors recommend several changes to improve state government transparency and accountability.