Our Legislature is now in session, and one of the big functions of the money committees – the Senate Committee on Ways and Means and the House Committee on Finance – is to balance the state budget. The Governor submits a budget to start with, the Council on Revenues weighs in with how much money the State is expected to take in tax collections, and then the committees get to work on adjusting the budget to make ends meet.
In the middle of this process, sometimes a letter from the Governor arrives saying, “We need to make some adjustments to the budget we sent in.”
If it’s a couple thousand or a couple hundred thousand, it shouldn’t be a problem. The State has a budget of $14.4 billion, counting all means of financing, according to the FY19 Executive Supplemental Budget.
But what about $50 million?
On February 5, Governor Ige sent the Legislature Governor’s Message No. 7, or GM 7 for short. Tucked away in that letter is a request for $48,978,602 for health premium payments to go to the Hawaii Employer-Union Health Benefits Trust Fund, or EUTF, which is the fund that provides for health care for state employees after they retire from government service.
The letter explained that when the Governor’s staff were putting together the budget for 2019, they used an actuarial valuation from 2015 and some projections by the Department of Budget and Finance based on the amounts they were currently paying into the fund. But then, in January 2018, an updated actuarial valuation report was issued. This one evaluated the EUTF as of July 1, 2017. That report contained an opinion of the annual required contributions that the State needed to make to dig EUTF out of its financial hole within 30 years. Because of a law that is referenced in GM 7, namely HRS section 87A-42, the State is required to come up with the full amount of the annual required contribution. Which happened to be $48,978,602 more than they previously put into the budget.
Apparently, the Senate Ways and Means Committee was sufficiently perturbed that it scheduled a rare informational briefing to grill the Department of Budget and Finance and the Department of Taxation about GM 7, a smaller additional budget request called GM 8, and a “$33 million individual vacation rentals legislative proposal” that also was tucked into the State’s financial plan.
The $33 million item, by the way, is expected revenue gain from the passage of an “AirBnB Bill,” the likes of which we have written about before. Interestingly, the Governor was counting on revenue gains from that bill in order to make ends meet on his version of the budget despite vetoing a similar bill in 2016.
The Ways and Means informational briefing is scheduled for February 28th at 10:00 AM, should be very interesting, but unfortunately won’t be done by our press deadline.
The moral of this story is that large unfunded liability items are unpredictable. If you have two 800-pound gorillas named ERS and EUTF in the bar, as we have written about before, you shouldn’t be surprised if one of them starts bouncing around once in a while and leaves some damage that needs to be addressed right away. We must deal with the current damage, but the bigger question – something that will take vision and leadership to answer – is whether we can do something about the gorillas.
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Tom Yamachika is the President of the Tax Foundation of Hawaii, a private, nonprofit educational organization dedicated to informing the taxpaying public about the finances of our state and local governments in Hawaii. Tom is also a tax attorney in solo practice and has been since early 2013. Prior to 2013, he was with the accounting firm Accuity LLP, which was formed in 2006 from the Honolulu office of Coopers & Lybrand (which later became PricewaterhouseCoopers). Before that, he served as an Administrative Rules Specialist in the State of Hawaii Department of Taxation from 1994 to 1996, where he drafted rules, interpretive releases, and legislation on several different state taxes. Prior to that, he practiced litigation and tax law with Cades Schutte Fleming & Wright in Honolulu.