Strict bud­get­ing needed to sus­tain re­tire­ment sys­tem

Honolulu Star-Advertiser - - VIEWS & VOICES -

Amere five months ago, it was re­ported that the state was en­joy­ing a $1 bil­lion trea­sury sur­plus af­ter clos­ing the fis­cal year that ended June 30. For state de­part­ments, vi­sions of ro­bust bud­gets for pet projects ma­te­ri­al­ized. For pub­lic la­bor unions and mem­bers, thoughts of hefty pay raises formed. For non­prof­its, the pos­si­bil­ity of more grant money emerged.

What a dif­fer­ence a half-year makes.

Vir­tu­ally each day of this new year has brought gloomier fis­cal news. The direst came Mon­day, via a re­port that showed the short­fall in Hawaii’s pub­lic em­ploy­ees pen­sion fund sky­rock­et­ing to $12.44 bil­lion in fis­cal 2016, up shock­ingly from last year’s $8.77 bil­lion. That widen­ing gap in the un­funded li­a­bil­i­ties for the state Em­ploy­ees’ Re­tire­ment Sys­tem, for which tax­pay­ers are on the hook, is dis­mal news in­deed — es­pe­cially since a pru­dent pay­ment plan de­vised years ago to pay down the ERS short­fall had seemed to be mak­ing head­way. Gov. David Ige, co-ar­chi­tect of that plan when he was Se­nate money chair­man, now must work with for­mer leg­isla­tive col­leagues to ad­dress that grow­ing gap. One op­tion broached would al­lot $385 mil­lion a year more, for an an­nual sum of $1.14 bil­lion of tax­payer money for the pen­sion pro­gram — in­clud­ing re­tire­ment, dis­abil­ity, sur­vivor ben­e­fits — that cov­ers 120,000 ac­tive and re­tired state and county work­ers.

It will be nei­ther sim­ple nor an­i­mos­ity-free.

Ige is be­ing crit­i­cized by the Leg­is­la­ture’s two pow­er­ful money com­mit­tee lead­ers, Sen. Jill Tokuda and Rep. Sylvia Luke, for sub­mit­ting a state bud­get pro­posal Luke deemed “bor­der­line schiz­o­phrenic.” They ex­co­ri­ated him last week for “pad­ding” de­part­men­tal bud­gets by tens of mil­lions of dol­lars, know­ing full well that state tax-col­lec­tion pro­jec­tions have been low­ered, mean­ing $155 mil­lion less than ex­pected to spend this year. They also blasted him for fail­ing to ac­count for ex­pected pay raises for ma­jor pub­lic-union con­tracts, which come due this year. For all the po­lit­i­cal theater, both leg­isla­tive and ad­min­is­tra­tive branches must muster the po­lit­i­cal will to de­flate bud­getary bal­loon­ing and carry out ef­fi­cien­cies in gov­ern­ment. And since in­creased wages mean in­creased pen­sion amounts, pay hikes will need to be ju­di­cious, and bal­anced against work-rules re­forms that pro­mote those ef­fi­cien­cies.

One salient ex­am­ple from a re­cent leg­isla­tive hear­ing: The state De­part­ment of Agri­cul­ture, which has seen an av­er­age of 1 of 3 jobs va­cant over the past five years, should jus­tify such jobs as cru­cial, or be pre­pared to pare. And that should ap­ply to all de­part­ments — truth in bud­get­ing and bet­ter use of funds.

As for the ERS, two ma­jor fac­tors are fu­el­ing the grow­ing short­fall: weak in­vest­ment earn­ings, and the fact that pen­sion­ers are liv­ing longer.

The first fac­tor will re­quire in­ter­nal fi­nan­cial — and per­haps per­son­nel — re­cal­i­bra­tions within the ERS; the lat­ter, though, must be ac­cepted as sim­ple fact that Hawaii’s older pop­u­la­tion is liv­ing longer so ris­ing costs can be ex­pected. What shouldn’t be ac­cepted as un­change­able, though, are the ERS’ gen­er­ous ben­e­fits and how they’re cal­cu­lated, for fu­ture gov­ern­ment hires. Law­mak­ers should ban “pen­sion spik­ing” — in­flat­ing base-pay cal­cu­la­tions with over­time, un­used va­ca­tion and other add-ons. Re­form also needs to in­clude con­ver­sa­tions on con­vert­ing the pen­sion fund to a 401(k)-style pro­gram for fu­ture em­ploy­ees, mak­ing them more re­spon­si­ble for their own re­tire­ments.

Hawaii’s leg­is­la­tors should take note of a re­cent ap­pel­late court rul­ing back­ing Cal­i­for­nia’s move to con­trol es­ca­lat­ing pen­sion costs. Wrote As­so­ciate Jus­tice James Rich­man in Au­gust: “While a pub­lic em­ployee does have a ‘vested right’ to a pen­sion, that right is only to a ‘rea­son­able’ pen­sion — not an im­mutable en­ti­tle­ment to the most op­ti­mal for­mula of cal­cu­lat­ing the pen­sion.” Sus­tain­able. For all of to­day’s talk about en­ergy sus­tain­abil­ity and food se­cu­rity, state pol­i­cy­mak­ers and gov­ern­ment em­ploy­ees must launch a new nor­mal with tax­pay­ers’ money. It in­volves needed re­form of civil ser­vice ben­e­fits and for­mu­las. It in­volves culling long-un­filled va­can­cies and mor­ph­ing out­dated jobs to be more ef­fi­cient. It’s called bud­get sus­tain­abil­ity, and it needs to start now.

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