State’s labor costs must be controlled

The legislative session has not even ended yet — final votes happen this week — but already there is a dark cloud on the horizon for the next session.

It’s the rising cost of labor. This is certainly not a new trend line for the state, but without some measure of civil service reform and other countermeasures in the coming years, the increase will surely outpace the state’s ability to fund it.

The first new pact to be negotiated and ratified bestows raises totaling 13.6 percent over the four-year life of the contract, as well as improved terms for health-care benefits, to the Hawaii State Teachers Association.

Due to past agreements and the general dynamic of collective bargaining for Hawaii’s public worker unions, the deal negotiated by one organization ripples out and compounds in similar agreements inked by the others.

For example: The other labor news last week was that six bargaining units of the Hawaii Government Employees Association won raises through arbitration, totaling about 7 percent, and increased employer contributions toward health coverage. Additionally, the University of Hawaii Professional Assembly is pursuing a better deal for its members.

The combined result will be a fiscal deficit that elected leaders will have to overcome.

The significant political influence wielded by the state’s public labor unions, drives politicians to support the agreements. Unlike private employers who are bound to protect the company’s bottom line, elected government managers don’t feel the same constraint.

They will face the voters, of course, but union support in a re-election campaign can neutralize the political fallout.

So the Legislature will need to find a course correction to prevent a serious budgetary shortfall in the near future.

The state has been on this collision course for a number of years. Salaries weigh down the operating budget, of course, but the most critical issue has been the payments to retirees.

After the recession, the state’s retirement benefits funds were in decline, and lawmakers moved to curb some benefits for new hires, maintaining its commitment to government employees.

In addition, legislators moved to pick up the pace in paying down the state’s unfunded liability for pensions and benefits. They have maintained that policy in recent years, and indeed the discipline of maintaining a rigorous payment schedule will save the state money in the long run.

In the near term, though, there’s reason to worry about whether the state still has the resolve it needs to keep its unfunded liabilities under control.

Gov. David Ige, sitting at the head of the negotiating table and up for re-election next year, agreed to generous terms for the HSTA, reflecting the premium he’s placed on funding education needs. And in other labor pacts there remains a conciliatory tone from the state, even in discussions aimed at reducing the liability.

For example, the road toward privatization of the public hospital system on Maui has included a few bumps, including an excessively costly severance deal with the unions. Considering that the aim of the initiative was to end the system’s deficit drain on the state, this was a curious course to take.

As the state confronts the reality of an increasingly expensive workforce, there are strategies that should come into play:

>> Privatization: As seen in the hospital initiative on Maui, this is not a simple solution but a route marked by legal disputes and other complications. Still, the state must look for ways to transition to a smaller labor pool. If pay and benefits keep going up, the number of employees must go down. Attrition would be one device; elimination of unfilled positions would be another.

>> Increasing revenue: Lawmakers must continue to seek new funding sources to cover labor costs. The push to consider tax collection from vacation rentals shows that elected leaders are clear on this concept already.

>> Civil service reform: The state must renew its pledge to manage its long-term labor responsibilities wisely. And this means finding new ways to rein in long-term costs.

Hawaii is not alone in this concern. Keli‘i Akina, executive director of the free-market think tank Grassroot Institute, wrote in a commentary that unfunded liabilities for pensions and benefits of retired state workers comes to about $23 billion.

In the past decade, benefits for public employees in the state have risen five times faster than in the private sector, Akina said.

He pointed to one solution chosen by several other states: Change the defined-benefit pension to another kind of retirement account.

Union members surely would fight the switch with their last breath. Political reality may bar such a radical cure, but fiscal reality demands action.

Something has to give, and it’s best if leaders were planning the rescue, rather than looking away.