New law requires health benefit payments

Gov. Neil Abercrombie signed into law Wednesday a measure to require the state and counties to make annual payments toward a $16 billion unfunded liability in the Employer-Union Health Benefits Trust Fund, putting the state on a more stable financial path.

The law for the first time commits the governments to a payment schedule and, starting in fiscal year 2018, authorizes the state budget director to divert the counties’ share of general excise tax and hotel room tax revenues if the payments fall short of targets set by an actuary.

Abercrombie said the law sends a message to credit-rating agencies and potential investors that the state takes its financial obligations seriously. The governor also signed two other bills into law that add
$50 million each into the hurricane relief fund and the rainy day fund, important cash reserves that had been tapped to help the state through the recession.

“I would have said it’s a red-letter day if we weren’t in the black,” Abercrombie said at a news conference at the state Capitol. “And we are.”

Kalbert Young, the state’s budget director, said Hawaii could be the first state to commit to a payment schedule in law. He said the state has been rated poorly in the past for not adequately dealing with its health care and pension obligations.

Lawmakers and the governor already included $100 million in the state budget for fiscal year 2014 and $117 million for fiscal year 2015 toward the health care fund for public employees. Financial experts have estimated that the state would have to pay $500 million a year for 30 years to satisfy the liability.

Sen. David Ige (D, Pearl Harbor-Pearl City-Aiea), the chairman of the Senate Ways and Means Committee, said the law sets a solid framework.

“Paying down these liabilities will have a positive impact on the state’s bond rating and ensure that Hawaii’s future is not handicapped by increasingly burdensome debt,” he said in a statement.

Counties, which have been putting aside some money for the past several years, have objected to the law, arguing that individual counties should have the discretion to set payment schedules for county shares of the obligation.

Rep. Romy Cachola (D, Sand Island-Kalihi-Airport), a former city councilman, said he understands the county concerns. He said counties bank on hotel-room tax revenue to pay for services and would suffer if the state diverted a portion  to meet payments.

Cachola favors turning the health care fund into a captive insurance company, which he believes would save on operations costs and complement the annual payments toward the unfunded liability.

“I always look at how to save taxpayers money,” he said.

Abercrombie said he credits counties for stepping up to meet financial responsibilities. But the governor said the law ensures “no matter who is in office, that we continue to meet those obligations,” adding, “So I think it will work out satisfactorily all the way around.”