Hawaii’s public sector fiscal problems demand dramatic action now.

Why? For more than a decade we incurred increasing levels of deferred liabilities without setting aside sufficient reserves to address them. A generation of Hawaii’s citizens enjoyed the benefits of government services without paying their true cost.

The deferred liabilities and public debt of the state and counties stand at an all-time high level and continue to grow at an alarming rate. Combined, they exceed 50 percent of Hawaii’s gross domestic product and are equivalent to a $20,000 debt obligation for each man, woman and child. This is why Moody’s downgraded the rating of our state bonds in May. It was a warning signal, and we need to take immediate heed.

The Hawaii Employees Retirement System (ERS) last year announced that the pension fund for public employees was underfunded by $7.1 billion as of 2010. That reflected a funded ratio of 61 percent, a decline from 2000 when the funded ratio stood at 95 percent. Preliminary analysis indicates the level of underfunding continued to deteriorate and fell well below 60 percent in 2011, putting the ERS in the bottom tier of public pension funds nationwide.

As alarming as that may sound, even more disturbing are disclosures by the Employer-Union Trust Fund (EUTF), charged with administering public employee retirement health benefits.

A recent actuarial study showed the EUTF was underfunded by $10.3 billion as of 2007. Only two years later, that deferred liability had grown to $14.7 billion. The study warns that if the health care cost trend increases by just 1 percent, the unfunded liability would escalate to $17 billion.

To prudently deal with the deferred liability, the state and counties need to contribute to the EUTF more than $1.1 billion annually for the next 30 years. Unable to do so, they instead attempt to meet their retiree health benefit obligations with "pay-as-you go" contributions, which totaled $390 million in 2011.

There is no avoiding the reality that the longer we take to fix the problem, the worse it will get. The liabilities will keep rising as public employees grow older and retire. Most "baby boomers" will retire within the next 10 years as our population shifts demographically.

Our elected officials must be resolute in adopting, without delay, bold measures to fix the impending crisis facing Hawaii’s public finances. Failing to do so could cause our state to spiral into the same economic vortex debilitating other states and municipalities.

Politicians need the confidence to act that can only come from the voice of the electorate. We must urge our public officials to have the courage to take innovative steps required to fix Hawaii’s fiscal heath. That also means we all must be prepared to embrace dramatic changes to accustomed ways of doing business in Hawaii.

The situation is not beyond remedying. There is still time to ensure that we can build a hopeful future for our children and grandchildren and not saddle them with a debilitating financial burden not of their making. But we must have the vision and fortitude to bring about changes that will grow our economy and strengthen our public finances. Let’s work together as a community with the awareness that the time to do so is running short.

Editor’s note: Colbert Matsumoto is on the board of Oahu Publications Inc. (the Star-Advertiser’s parent company), which is separate from this newspaper’s editorial board.

Colbert Matsumoto is chairman of the state Employees Retirement System.