State’s unfunded liabilities crisis has a silver lining

  • Contributed photo

    Keli‘i Akina, Ph.D.

Soaring public pension and health benefit costs will be slamming Hawaii’s county governments in coming years, forcing them to consider cutting important government services or increasing taxes — neither of which are attractive options.

But the dark cloud of the state’s unfunded liabilities crisis could have a silver lining — if it encourages state and county policymakers to consider ways to cut their expenses while yet maintaining the quality of life we all want for our communities.

Such ways could involve greater public-private partnerships, less regulation of emerging businesses, more opportunities for entrepreneurs, and, of course, letting isle residents keep more of their hard-earned money, instead of taxing it away from them and squandering it on ill-conceived and poorly managed government projects and programs.

The sad fact is that the state’s Employee Retirement System (ERS) and the Employer Union Trust Fund (EUTF) have, by conservative estimates, saddled Hawaii taxpayers with $26 billion in unfunded liabilities, despite the best efforts of their recent managers to restore solvency to those programs.

Those unfunded liabilities have increased through the years because of increased health care costs, more benefits promised to public workers and the usual political meddling. Between 2005 and 2015, pension and health care benefits in Hawaii increased five times faster for government workers than for workers in the the private sector.

Hardest hit by the coming fiscal crisis will be Kauai County, which plans to divert a full 15.6 percent of its $218 million operating budget this fiscal year to help pay down the ERS and EUTF debts, the highest percentage among Hawaii’s counties.

In dollar amounts, Kauai’s payments are going up from $29 million in fiscal 2018 to $34 million this fiscal year, or $472 for each person in the county. And the payments are expected to keep increasing beyond that.

The steeper payments for all the counties were required by the state Legislature for the EUTF in 2013 and the ERS in 2017, as part of its effort to reduce the fiscally dangerous levels of the unfunded liabilities of the two state programs. Of course, the Legislature’s incessant meddling in the operations of the systems is another reason for the programs being in crisis to begin with, and its efforts to shift the costs to the counties is unfortunate.

Nevertheless, the crisis does demand action of some sort, though not necessarily cutting services or raising taxes.

Joe Kent, Grassroot Institute of Hawaii’s executive vice president, advised Kauai County Council members at a council session in September that among the easiest ways to help reduce the pain of these increased payments would be to rein in excessive overtime pay and put a stop to the well-known pension-spiking schemes.

Kent said another relatively easy path would be to offer new-hire public employees alternative pension plans that would balance promises with contributions made into the system. The point would be to ensure that the benefits promised to the current state and county workers can be paid while still making it attractive for talented individuals to work for our state and county governments.

Maybe not as easy would be to reimagine completely how government services should be delivered in the islands. In particular, how we possibly could rely more on businesses, entrepreneurs, nonprofits and public-private partnerships, to help make up for the damage imposed by the current fiscal crisis — and at a lower cost.

Again, the state’s unfunded liability crisis could be an opportunity to actually improve how government operates in Hawaii, but only if state and county lawmakers are willing and courageous enough to think creatively about it.


Keli‘i Akina, Ph.D., is president of the Grassroot Institute of Hawaii.

  1. Chamundi Sabanathan November 22, 2018 7:41 am Reply

    You want to make it easier for people to keep their hard-earned money? Quit taxing wages and self-employment income.

    You want to increase opportunities for entrepreneurs? Quit taxing them too.

    To encourage productive activity, quit taxing it in any form. Get rid of the sales tax—expecially as applied to food!

    Not immediately, of course, but only as more appropriate sources of public revenues are implemented.

    What is the proper source of public moneys, then? Think of the natural resources of this earth. This earth and its resources are the common heritage of mankind (to be shared with the other life forms). By what right does anyone lay exclusive claim to any part of it? By what right does a small percentage of mankind claim most of the earth’s surface, not to mention its minerals and other resources? By what right does this small percentage of mankind demand payment from everyone else simply to exist on this planet? This practice started with “first come, first served” and has been perpetuated by a long series of transfers to heirs and to others who come up with enough money.

    “But I bought it, I paid good money for it!” “But this land has been in my family for generations!” Yeah? What happens when a reputable museum learns one of its prized antiquities was stolen from its country of origin? It is returned, with apologies. What happens when anyone is found to have purchased stolen goods? They must be returned to their rightful owner.

    The “first come, first served” approach seemed reasonable when there were few people and vast expanses of land. But now it can be recognized as a theft from humanity as a whole.

    The Hawaiians’ system apparently worked fine for them. But in modern times, how can the value of the earth’s resources be recovered and used for the good of the general public? This can be accomplished through taxation. Instead of taxing people’s hard-earned money, increase the tax on the value of the natural resources to which they hold title. If land were taxed at its full value, we would not have people like Zuckerberg paying a one-time purchase price for vast tracts of our precious island (followed by relatively insignificant annual property taxes).

    At the same time, the taxes on houses and other improvements—anything created by productive human activity—should be removed. Most homeowners would end up actually paying less taxes, since currently the taxes fall more heavily on their house than on the land under it.

    Just think for a minute, how is it possible for a few people to own so much of this island, while the middle class continues its slide into homelessness? The concentration of land in the hands of a few has jacked up the rents everyone else must pay them, simply to inhabit this earth. This is one of the prime factors that has led to the increasing gap between rich and poor.

    It’s time to fix the system.

  2. Ginger Doll November 22, 2018 8:29 am Reply

    Your free market Grassroots Institute solutions will work the same as Trump’s tax cuts which drastically reduced taxes on the wealthy while are little noticed by the working class.
    When public services are transferred to the private sector, wages and benefits to workers are reduced making it harder for those affected to live in the Hawaiian economy. The private sector then rewards itself with a handsome profit. Savings to the public are mostly non-existent.
    Just as Trump’s tax cuts are creating massive deficits, tax cuts in Hawaii will do the same.
    The solution is to increase taxes on those who can easily afford to pay. The Wealthy Class can pay more. It is the class that the Grassroots Institute was created to protect.

  3. Charlie Ryan November 22, 2018 10:09 am Reply

    I didn’t hear any of the Mayoral or County Council office seekers addressing this pension crisis as an issue when they were running for ofice. Now that the election is done, I’d like to see how the County Council responds to this issue, or if they irresponsibly “kick the can down the road”.

  4. RG DeSoto November 22, 2018 12:06 pm Reply

    All in all you’ve made some good points (although I won’t be holding my breath). The one thing that I want to point out is your inclusion of “public-private partnerships”. This is a euphemism and perhaps better descriptions of this terrible arrangement are state corporatism or crony capitalism. As you must know state corporatism is a polite name for fascism as is crony capitalism.
    Of course this so called partnership is dominated by the “public” or state side of the arrangement with the private side taking a back seat.
    The better approach is to get government out of the picture altogether wherever possible and rely on market forces and players. (here again, I won’t be holding my breath) The state is nothing less than a monopolizer of force and coercion–an organized ring of thieves which takes what it wants against which we have little defense.
    RG DeSoto

  5. manawai November 24, 2018 9:09 am Reply

    “The concentration of land in the hands of a few has jacked up the rents everyone else must pay them, simply to inhabit this earth. This is one of the prime factors that has led to the increasing gap between rich and poor.”

    Boy, that is some messed up thinking, Chamundi Sabanathan. The larger land owners would love to build more housing but there are many more voters here who don’t want ANY more housing built because they have theirs, of course, and they don’t want to loose existing views of open land, add more cars on the road or big box stores to help the poor with lower food and merchandise prices. So it is illogical thinking like yours that is exacerbating the housing and cost of living crises here. Ask folks like Joann Yukimura who pass bills to shackle developers with so many expensive extractions, and take so long even if those extracts are met, that developers, to many folks delight, avoid attempting to build here. So it’s “thinkers” like you who are actually preventing more reasonably-priced housing because the building of new housing is so curtailed that we have no hope of catching up with the constantly increasing demand for said housing. I guess you missed the class where students are taught that excessive demand over available supply causes increased product prices. Socialists try to change that by government control of prices, i.e. price fixing which actually results in the opposite of what they’re trying to accomplish. Fixing prices only causes even less supply to be added to the market’s inventory.

  6. manawai November 24, 2018 9:21 am Reply

    PS – If our politicians have failed after so many years to solve our housing crisis, then it’s obvious that their methods don’t work. Remember what the definition of crazy is? Yup, it’s happening here.

  7. Ginger Doll November 26, 2018 5:56 am Reply

    I agree. The large landowners will happily build more housing on Kauai, if permitted.
    Unfortunately, demand for a residence in paradise will always exceed supply. Kauai citizens will always be outbid by Mainlanders.
    How long before Kauai turns into Mauai? Or worse, Honolulu.
    Those who seek a market solution will secure massive profits for landowners while exacerbating homelessness.

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