Kauai County taxpayers will be paying millions more every year into the state Employees’ Retirement System (ERS) because of Act 17, signed into law this year by Gov. David Ige. The law requires the state and counties to ramp up their payments into the state pension fund.
Kauai County paid $15 million into the pension fund in fiscal 2017. Now, its payments will increase, to approximately $16 million in fiscal 2018, $18 million in fiscal 2019, $20 million in fiscal 2020 and $23 million in fiscal 2021.
This amounts to a total of $17 million in extra payments by Kauai County over the next four years alone — and its contributions are set to remain just as high every year afterward.
Kauai County will feel the pinch more than other counties because pension payments are set to make up 11 percent of its operating budget annually. This compares to only 10 percent for Hawaii County, 8 percent for Honolulu County and 8 percent for Maui County.
Thom Williams, executive director of the ERS, said the extra payments are needed to help the state public pension system avert a crisis in unfunded liabilities, currently estimated at about $12.4 billion.
“The crisis was averted in part by an increase in contributions,” said Williams, at a public presentation on Maui in September hosted by the Grassroot Institute of Hawaii.
Williams was correct that the increased payments will help the ERS pay down its unfunded liabilities and return to being able to meeting its current obligations to state and county employee retirees.
But a new crisis has begun — the crisis of taxpayers feeling the pain of bailing out the system.
Williams acknowledged that the counties will be under more financial pressure.
“We know over time it really crowds out other goods and social services that are required, whether it’s education or roads or hospitals, or you name it,” he said. “There are limited revenues available, and these are commitments that have been made and need to be paid.”
Earlier this year, the Kauai County Council admirably balanced its budget without the need for a tax increase. But now, it might be tempted to raise taxes after all, or cut services to make room for the extra dollars earmarked for the pension fund.
Requiring bigger payments into the pension fund is a national “best practice” for pension reform, and it is one step toward righting the system.
However, the new payments will kick off a period of budget turmoil for the county — and for Kauai’s taxpayers and public workers who ultimately are on the hook.
Joe Kent is vice president of research at the Grassroot Institute of Hawaii, a nonprofit, Honolulu-based public policy think tank that “seeks to educate people about the values of individual liberty, economic freedom and accountable government,” according to its website, grassrootinstitute.org. He can be reached at email@example.com.