Health fund tops budget priorities

Sending a message about priorities, state House and Senate budget negotiators Thursday agreed to make a substantial down payment on the state’s $16 billion unfunded liability in the public-worker health care fund.

The state would devote $100 million in fiscal year 2014 and $117 million in fiscal year 2015 toward liability in the Employer-Union Health Benefits Trust Fund, the health care fund for public workers and retirees. The Abercrombie administration has warned that addressing the unfunded liability is necessary for Hawaii to avoid the crushing health care and pension obligations that have overwhelmed other states.

Hawaii should be spending $500 million a year toward the liability, according to Kalbert Young, the state’s budget director, and lawmakers are still considering legislation this session that would ramp up annual payments over several years.

But the initial investment in the budget is substantial given the pressure on lawmakers to spend money on tax incentives and new state programs. Two years ago the Legislature and the Abercrombie administration agreed to adjust retirement benefits for public workers to contain future liability in the Employees’ Retirement System, but the state has not had the money available since the recession to address the health care fund.

Rep. Sylvia Luke, the chief House budget negotiator, and Sen. David Ige, the chief Senate negotiator, announced the agreement as they opened talks on the final draft of the state’s two-year budget.

"The unfunded liability is an issue that’s been looming for a while, and it’s a statement by both the House and the Senate that we are willing to make an investment to reduce the liability for our future generation," Luke (D, Punchbowl-Pauoa-Nuuanu) told reporters.

Ige (D, Pearl Harbor-Pearl City-Aiea) said the unfunded liability "should be first and foremost in the budget. And that’s why we wanted to get agreement early. We wanted to make everyone in the state aware that both the House and Senate are committed to fulfilling our requirements for those benefits already accrued by those retirees."

Young said any progress that moves the state closer to the $500 million a year necessary to address the unfunded liability is welcome.

"We didn’t assume that it would be a foregone conclusion that the Legislature would support the executive’s recommendation to get even to the $100 million," he said. "So we’re actually very glad that the Legislature — both House and Senate — have seen that we have to do something with this unfunded liability."

With money for the state’s health care liability settled, the administration can concentrate on its other budget priorities, such as early-childhood education, information technology upgrades, and incentives to encourage entrepreneurs.

Just before the conference committee on the budget opened, Gov. Neil Abercrombie and Maya Soe­toro-Ng, an educator and President Barack Obama’s sister, appeared at a rally at the state Capitol urging lawmakers to fund the preschool initiative. Hundreds of young children waving handcrafted banners attended with teachers and parents.

"For us not to do this at this time means we’ll miss the wave," Abercrombie told the rally, noting that Obama has also called for investments in early-childhood education.

House and Senate negotiators opened the conference on the budget earlier than usual and have already reached agreement on about two-thirds of the final draft. Other bills with financial components cannot move without budget clearance.

Ige and Luke were mindful of the brinkmanship last year that pushed budget talks past internal deadlines and shook the traditional order that helps keep the Legislature functioning.

"We are committed to avoiding the chaos at the end," Ige said.

Luke was among the dissident Demo­crats and Republicans who removed Rep. Calvin Say as speaker this year. Say (D, Palolo-St. Louis Heights-Kaimuki) had been a master of late-night standoffs with the Senate near the end of session, with the House often prevailing, but the dissidents and others have questioned whether such pressure produces the best results.

House Speaker Joseph Souki (D, Waihee-Waiehu-Wailuku), who was also known as a nimble backroom negotiator when he was speaker in the 1990s, has adopted the transparency mantra of Luke and the new leadership coalition.

Luke said she wants to avoid the last-minute scramble "because that’s not really transparent, that’s not fair to the members of the House, or that’s not fair to each other and to the public," she said. "So in order to try to be as transparent as possible, we wanted to start early so we can end early."