FITCHRATINGS SAYS COUNTY FINANCES GOOD, HAWAII PENSION DEBT WORSE THAN EVER
And now I’d like to take a few moments to talk about something near and dear to all of our hearts: Other Post-Employment Benefits (OPEB) liabilities. I know, topics as sexy and provocative as this are rarely suitable for even alternative papers, but hey–we’re all adults here, right?
Basically, we’re talking about government employee pensions and benefits, which make up a surprisingly large and increasingly unstable part of most municipalities’ debt burdens. The reason I’m bringing this up is because of a recent FitchRatings report on a new $71.2 million* General Obligation Bond for the County of Maui (I know, reporters shouldn’t be allowed to have this much fun). And that report, which is generally very positive about the county’s financial situation (it got a vaunted AA+ rating, after all), does contain the following disturbing sentences:
“The weakness in the county’s otherwise sound debt profile is its pension and OPEB liabilities,” states the Oct. 25 report. “The county participates in the state pension plan, which is poorly funded at just 59%, with a 7.75% investment assumption. However, the funded level deteriorates to 55% with the 7.00% return assumption Fitch uses to enhance comparability between pension systems.”
That’s actually bad news. A safe level of funding for pension liabilities, most economic experts agree, is about 80 percent–meaning the state actually has assets equal to 80 percent of the pension debt. Nothing like that is apparently happening in Hawaii, though, since 80 is way higher than the 59 percent (or 55 percent) currently seen here. This is also worse than the 61 percent funding figure cited in the Associated Press’ June 19, 2012 article on state pension liabilities, which also reported that Hawaii racked up $18.5 billion in obligations and is among the 10 worst states in the nation in terms of such debt.
“Over the past couple of years the board of trustees has been initiating legislative proposals to deal with the significant and escalating pension liabilities,” says Wes Machida, administrator of the State of Hawaii Employees’ Retirement System, in the AP story.
They’ve done, FitchRatings says, by “increasing contribution rates incrementally through fiscal 2016, starting a second tier for new employees, and eliminating pension-spiking opportunities.”
Of course, that seven percent rate of return used by Fitch seems optimistic. In an Oct 23, 2012 Bloomberg article on pension problems that postulates a $2 trillion gap between municipal pension obligations and funding, Peter Orszag (who ran the Office of Management and Budget for President Barack Obama) assumes a more realistic six percent return on investment in his calculations.
The reason for such debt problems? Orszag says it probably lies in a mix of public employee union intransigence (which has long negotiated extremely lucrative benefit packages) and a lack of simple fiscal discipline.
In any case, the FitchRatings report says the County of Maui has actually been dealing with the debt in a financially responsible way:
“The county’s unfunded OPEB liability is substantial at $344 million (1.1% of AV [assessed valuation]),” states the report. “However, the county has been proactively addressing its liability by contributing 100% of ARC [actuarially required cost] to an OPEB fund since fiscal 2007.”
But even that fiscal responsibility has a cost. To put all this very arcane accounting into human terms, the more cities, counties, states and school districts have to spend on pension and benefit obligations to retired employees, the less they have to spend on things like road and wastewater improvements, public schools, libraries, health care, social services for poor people and so on.
And those things are all important to a functioning democracy, right? Right??
WE SPENT WHAT ON WHAT?!
Monday morning we heard on NPR that a new Center for Responsive Politics report pegs the spending on political advertising this election year at $6 billion. Even when you add up all the television and radio spots, newspaper ads, billboards, web ads, buttons, t-shirts and bumper stickers, that’s a lot of dough. This is, according to CRP, the most ever spent on an American election.
Now longtime Washington columnist/baseball fan/bow-tie wearer/coot George Will has often scoffed at such statistics, saying they pale before what the nation spends every year on “potato chips.”
Ignoring the obvious fallacy that American consumers don’t purchase political campaign ads in the same way they buy a bag of Ruffles, we’ve always been fascinated by Will’s trotting out the comparison every election cycle. This year, while we couldn’t quite locate the latest domestic sales figures for just potato chips, we were able to find some other fascinating U.S. stats. Here’s how that $6 billion in political advertising for 2012 figure stacks up against other products Americans are buying:
• $98.94 billion on beer (2011)
• $34 billion on chips and pretzels (2012)
• $27.2 billion on books (2011)
• $19.5 billion on chocolate (2011)
• $16.3 billion on video games (2011)
• $10.2 billion on movie tickets (2011–U.S./Canada)
• $4.52 billion on coffee (2011)
• $1.7 billion on medical marijuana (2011)
So there you go. In terms of sales, political spending is way more important than coffee and medicinal pot to Americans, but no where near as important as books, chocolate, salty snack foods and, of course, beer.
IAO VALLEY STATE PARK TOLLBOOTH DESTROYED!
Forgive us if we don’t exactly cry over the fiery destruction of the toll booth at the Iao Valley State Park lot, causing $4,000 in damage, according to the Nov. 4 Maui News. We know the state Department of Land and Natural Resources needs money bad, but charging for what was once free will always leave a bitter taste in our mouths.
Vandalism is a suspected cause, according to the News, though we wonder as to possible suspects. Since toll booth operators (at least as far as we know) weren’t charging locals, is it possible we’re dealing with a pissed off tourist (or tourists)?
We’d look into this more, but we just realized that we have an awful lot of beer to drink.
*This article originally reported an incorrect dollar amount for the bond.