Let’s see if fiscal restraint by state curbs city’s impulse

Gov. Neil Abercrombie took three years to make peace with Hawaii’s biggest economic problem — the debt owed to public workers’ retirement fund and soaring medical costs.

In past years, Abercrombie has been something of an economic alarmist: When the economy twitched, when the red ink rose, Abercrombie’s reaction was to call for more taxes.

From taxing pensions, to taxing sugary drinks, plastic bags and real estate transfers, a new or higher tax was the oil to pour on all troubled economic waters.

Then the governor met the massive unfunded liabilities of the pension and health fund.

This is a problem too big to tax your way out of.

The pension fund has a debt of $10.9 billion.

According to Moody’s Investors Service, the debt is 132 percent of the Hawaii state revenues. On a per capita basis, the debt comes out to $7,923. Viewed another way, it is 16 percent of the Hawaii gross domestic product.

The pension fund gives retirement, disability and survivor benefits to 113,282 active and retired state and county employees.

Last week, Abercrombie took a big step and signed three bills that will go a long way toward paying the debt. It won’t be easy or much fun — no one is going to stand up and cheer because Hawaii is paying its debts — but if not started, our bond sales would not be popular and it would cost more for Hawaii to borrow money.

Kalbert Young, state budget director, watched as Abercrombie signed the legislation, House Bill 546, which requires the state and counties to put in a specific amount of money every year to resolve the debt.

"This is a game changer," said Young, calling it "a clear message to financial institutions that the state of Hawaii takes very seriously building its financial capabilities to meet all of its financial obligations."

An actuary will perform a study to figure out how much we are going to pay every year. If the state doesn’t pay up, the law requires the money to come out of the general excise tax; if the counties don’t pay, the money comes straight out the hotel room tax that was supposed to go to the counties.

During the beginning of this year’s legislative session, the Abercrombie administration opposed the plan, but then switched its position and gave its support. The counties never liked the idea, members of the state House were skeptical, but when the administration changed its position, the bill moved.

The Senate Ways and Means chairman, Sen. David Ige, was the bill’s biggest booster, and after the signing, he said, "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."

All this serves as an interesting maturation process, especially in comparison to Honolulu’s new mayor, Kirk Caldwell, who last week when faced with a simple pay raise for the police, hit the tax button.

The increase, 16.8 percent, was more than Caldwell had budgeted for.

"It is clear that the city administration and the Honolulu City Council will need to address revenue enhancements while looking for additional cost savings if we are going to meet our financial obligations," Caldwell said.

After years of being branded as a "tax and spend" political leader, it would be revealing if Abercrombie’s fiscal restraint is the new model.

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Richard Borreca writes on politics on Sundays, Tuesdays and Fridays. Reach him at rborreca@staradvertiser.com.