Gov. David Ige is making some bold moves to keep the state’s fiscal house in order — socking away 10 percent of state treasury collections in a “rainy day” fund and shoring up public employees pension and health funds.
While Ige’s conservative budgeting makes good fiscal sense, the governor will have to be mindful of issues that need to be addressed in the here and now, mainly within social services and crucial for those struggling with basic life needs.
A careful balance is crucial: What is not tended to today could fester and lead to bigger problems down the road.
Case in point — homelessness. Years of neglect led to the establishment of tent cities in Kakaako and elsewhere, leading to the state’s troubling distinction of having the highest per-capita rate of homelessness in the nation. Had elected leaders years ago given the issue its prompt and due attention, and allocated the appropriate amount of resources, the state might not be grappling today with as large of a problem.
So when the state has the extra funds — as in now, with its $1 billion cash surplus — Ige must weigh whether those funds are best served investing in the future or fixing what ails the state today. Those are critical decisions.
Ige’s new budget reserve policy declares the state will try to maintain a balance in the emergency reserve fund equal to 10 percent of the state’s annual general treasury collections, which are now about $6.8 billion a year. That amounts to squirreling away $680 million or more, no small sum.
The 10 percent will essentially provide the state a stronger foundation in the event of an economic downturn. Currently, the rainy day fund has a mere $100.9 million, but the administration is depositing another $201.4 million for this fiscal year, and likely will be required to deposit $32 million next year. All that gets the state about halfway toward its ambitious goal.
Already, many are pointing out potential collateral damage from Ige’s conservative fiscal policy, and they should not be ignored. Victor Geminiani, co-executive director of the nonprofit Hawaii Appleseed Center for Law and Economic Justice, said lower-income residents, in particular, won’t be helped.
“At some point you’ve got to deal with the current realities, not necessarily the future contingencies,” Geminiani said — and that’s a fair assessment.
Randy Perreira, who heads the Hawaii Government Employees Association (HGEA), the state’s largest union, rightly noted that the Ige administration “has got to find a balance between trying to be what they view as fiscally responsible, versus prudent use of resources to help people today who are in need.” In the same breath, however, Perreira said that some of HGEA’s members wages are not increasing fast enough — so clearly he would be pushing for pay raises.
But public worker raises, even as the state is enjoying a budget surplus, cannot be handed out like Halloween candy. Those raises will have to be paid out in bad economic times as well as good, so they should be linked to improving longtime inefficiencies or outdated work categories or rules.
Meanwhile, Ige is proposing changes in the Hawaii Employer-Union Health Benefits Trust Fund and the Employees Retirement System (ERS) pension fund as part of a larger effort to reduce unfunded liabilities. The unfunded liability for the health fund is more than
$9 billion; the pension fund, $6.2 billion.
There is merit in Ige’s push to accelerate payments into the pension fund, thereby strengthening its future viability.
Further, with more privatization efforts on the horizon — like the transition occurring at Maui Memorial Medical Center, Kula Hospital &Clinic and Lanai Community Hospital — it makes sense to establish sound procedures for future “disassociation.”
While the state has yet to provide details, planning now for what’s ahead is encouraging. Under the Maui hospital system’s privatization effort, many of those vested public workers will stop contributions into the ERS as soon as the hospitals transfer to Kaiser Permanente July 1.
The result: $200 million in lost employee contributions to the pension system over the next 25 years. To offset that loss to the pension fund, state Budget Director Wes Machida said, the state could possibly make a lump sum payment or make larger annual payments — money that could have gone to other state services.
Agree or disagree with Ige’s conservative approach, it’s clear that he is hedging on the state’s fiscal health, fully aware that the good times won’t last. The challenge lies in delicately balancing the balance sheets, so as not to leave the truly needy out in the cold — literally.
