And now for a subject that I’m sure is near and dear to your heart: public employee pensions and health benefits. I know, I know–there’s nothing sexier than pouring over actuarial tables on how we actually pay for the benefits for the state’s 120,000 or so public employees, but someone’s gotta do it, right? For the few of you out there who don’t find such subjects fascinating, consider this: the State of Hawaii has limited resources, so paying for retired employees means not paying for something else, like infrastructure repairs, school air conditioning, etc. And not paying for employee pensions and benefits just kicks the ball onto the next generation’s field–you can’t do that forever and expect to maintain a solid credit rating.
Anyhoo, so there are a few bills still alive (barely) in the state Legislature kinda/sorta dealing with this. Well, dealing with public employee health benefits–House Bills 887 and 888 specifically address the state’s Employer-Union Health Benefits Trust Fund (EUTF), which has a liability of $13.3 billion, according to state Department of Budget and Finance Director Wesley Machida ($11 billion of which is unfunded). HB 887 “establishes the Rate Stabilization Reserve Fund within the Hawaii Employer-Union Health Benefits Trust Fund to help subsidize the costs of providing health and other benefit plans for active employees and retirees and their beneficiaries,” according to the bill, while HB 888 requires the Legislative Reference Bureau “to study the feasibility of providing health benefits to state and county employees using a self-insured model.”
Rep. Romy M. Cachola, D–Pearl Harbor, introduced both bills.
“The way to solve the state’s unfunded liabilities problem is by switching from fully-insured to self-insured to pay for medical insurance for public employees and retirees,” Cachola said in a Mar. 8 news release from the State House of Representatives. “Self-insurance will save millions of dollars and we can use those funds not only to pay down our unfunded liabilities but for much needed programs such as homelessness and housing needs. Many other states successfully self-insure their health care plans and provide the same amount of coverage to their workers. Hawaii can do the same thing without overburdening our taxpayers.”
Both bills seemed to moving through the Legislature nicely, though neither has moved since Mar. 9 (on that day both bills passed their first reading and were referred to the Judiciary/Labor and Ways and Means committees). Still, they represent the tiniest of incremental changes to the state’s health benefits liability, which by the way, is getting way worse. To see how, we need only look at Machida’s Feb. 24 testimony before the House Finance Committee.
“[T]he total health benefits accrued liability is expected to grow from $13.3 billion in 2017 to $44.5 billion in 30 years,” Machida said. “The health benefits unfunded liability is also expected to increase by over $6 billion without consideration of any investment returns on stopped contributions.”
People are living longer. What’s more, Machida says “more than 12,000” EUTF members could retire today. Paying benefits to them will be expensive, to say the least.
Of course, neither of Cachola’s bills does anything about the state’s pensions, the “unfunded actuarial accrued liability” (UAAL), which is $12.4 billion (meaning the state’s total unfunded liabilities amount to more than $23 billion).
Two other bills, HB 1061 and SB 927, change the rates for employer contributions to the whole Employee’s Retirement System (ERS), but both appear to be stalled. HB 1061 actually went before a hearing, but has been stalled since Feb. 16. Nothing has happened with SB 927 since it was introduced on Jan. 25. This might actually be a good thing.
“Last year, state leaders poured $1.5 billion of taxpayer money toward satisfying the unfunded liabilities for pensions and health benefits for retirees, which is the highest payment the state has ever made, to no avail,” states a Spring 2017 Grassroot Institute report “The Costs of Public Employment in the Aloha State.” [T]he state debt grew higher than it has ever been.”
And if somehow a measure like SB 927 or HB 1061 passes, it “could take money away from local government services like police, fire, schools, and building repair,” states the Grassroot Institute report. “Kauai County would be the most heavily impacted by the new required payments, which would make up 15.5 percent of the entire Kauai County budget.” (Though to be fair, Maui County’s contributions would amount to a far lower 3.2 percent of the budget.)
Still, with a funding level of just 54 percent, Hawaii has “one of the lowest funded pensions in the country,” R Street Institute columnist and public employee pension expert Steven Greenhut said during his visit to Maui last month. The likelihood of the state ever paying off the UAAL is also in doubt, according to a report released in January by Gabriel Roeder Smith & Company (GRS), the state’s actuarial consultant.
“[T]he period to fund the UAAL is Infinite (i.e. the UAAL is never expected to be paid off) for Police and Fire and 59 years for the All Other Employees group,” states the GRS report. “The aggregate funding period for ERS is 66 years. Since the aggregate funding period based on the contribution rates exceeds 30 years, the rates are not adequate to meet the requirements of Hawaii Revised Statutes §88-122(e)(1).”
The idea that the funding period for police and fire pensions in Hawaii is “infinite” is mind-boggling. Put simply, GRS is saying it’s unlikely the State of Hawaii will ever pay them off. And paying off other pensions in 59 years?! That’s three generations from now!
As for how you fix all this, you got me. A libertarian organization like Grassroot Institute advocates changing Hawaii’s state government from a “defined benefit” system (public workers get generous benefit packages regardless of what’s been contributed to the benefit fund) to a “defined contribution” system.
“Unlike a ‘defined-benefit’ system, the defined-contribution plan promises government workers benefits based on how much money was contributed to the fund, similar to a 401(k),” Grassroot Institute VP Joe Kent wrote in a Mar. 16 blog post for the think tank. “This balances revenues with expenses, so the pension system remains fully funded.”
Of course, if the Hawaii state Legislature is letting far less radical unfunded liability measures die, there’s pretty much zero chance of them embracing defined contributions. Which means all this fun will continue into next year. And the next. And the next…
Photo: Images Money/Flickr