State Financial Condition Still Dismal
by Tom Yamachika, President, Tax Foundation Hawaii
Here in Hawaii, we have weathered a major pandemic. The primary driver of our economy is, and has been for a long time, tourism. Tourism was in the toilet during the pandemic, with our Governor going so far as to publicly urge tourists to stay home or go somewhere else. Now, with the brunt of the pandemic apparently past us and tourism levels back up to pre-pandemic levels, and with bazillions of federal dollars coming in to prop up our teetering economy, you would think we would be in reasonable shape financially, right?
Not so, according to the nonprofit Truth in Accounting, which about one year ago put out a report called “Financial State of the States 2021.” That report compared published financial information from all of the states for fiscal year 2020, graded all of the states, and ranked them based on fiscal health.
Hawaii received – you guessed it – an “F.” This grade happened to be given to the bottom ten states, which, from Nos. 41 to 50, were New York, California, Vermont, Kentucky, Delaware, Hawaii, Massachusetts, Illinois, New Jersey, and Connecticut.
The top ten states, from Nos. 1 to 10, were Alaska, North Dakota, Wyoming, Utah, South Dakota, Tennessee, Nebraska, Idaho, Iowa, and Oregon.
Fun facts from the Truth in Accounting report:
We had $29.9 billion in assets. When capital assets and restricted assets are deducted, it left $6.5 billion to pay bills. Our total bills amounted to $24.5 billion. The shortfall divided by the number of taxpayers we have here yields about $37,000 of shortfall per taxpayer.
What kind of bills do we have that put us in this pickle? The two 1,000-pound gorillas in the room are, and there are no surprises here, unfunded pension benefits and unfunded retiree health care benefits. Our state government promised to pay our retired employees a pension. It also promised to pay their health care, in some cases for the life of the retiree. The State’s audited financial statements pegged these numbers at $10.4 billion of unfunded pension benefits and $9.4 billion of unfunded health care benefits.
Put together, the unfunded benefits total almost $20 billion of the $24.5 billion in total bills. That’s quite a benefit for state retirees, and a noose around the neck of the rest of us who are trying to make ends meet and don’t happen to be state retirees.
Truth in Accounting also observed that “Hawaii’s overall financial condition worsened by 11 percent during the onset of the pandemic mostly because pension plan liabilities increased faster than investment income.”
With the way the financial markets have been sputtering, it’s probably not a good idea to simply hope that a humongous upturn in the market will make investment income soar and pull us out of this mess. Besides, if there is indeed an upturn in the market and we are flush with investment income, our lawmakers can be expected to raid the gains and spend them on new things, as they have done in the past.
What about the old things? The promises that our state government already has made?
“Those don’t get me votes,” our lawmakers may be thinking. “New parks, bridges, and rebates to taxpayers might get me votes.”
Fiscal discipline, however, will get us survival.