During floor session in the Hawaii Senate on March 7, Big Island state Sen. Malama Solomon strongly defended a bill that sets up a public-private-partnership authority to help spark development.

While critics have said the authority too closely resembles the much-maligned and soon-to-be-repealed Public Land Development Corporation, Solomon said the PPPA would help create jobs and improve the economy.

“We are on the verge of bankruptcy — 2016,” she said. “That’s what we are talking about here, you know?”

Reached by Civil Beat the next day, Solomon said “we” means “Hawaii” and the cause of bankruptcy would be the state’s unfunded liabilities when it comes to health and pension benefits promised to public workers when they retire.

Is Solomon correct? Will Hawaii be on the verge of bankruptcy in just three years?

A $22 Billion Tab And Growing

Hawaii does indeed face a growing budget obligation.

The state’s obligation for the Hawaii Employer-Union Health Benefits Trust Fund — EUTF — is currently more than $14 billion, while more than $8 billion is owed to the Employees’ Retirement System, or ERS.

“People don’t seem to take it seriously,” said Solomon. “We have got to pay that down.”

Solomon said legislative initiatives like creating a PPPA could generate revenue to help the state meet its financial obligations.

“But it’s kind of falling on deaf ears in here,” she said.

Over the past few years, more government officials have warned about unfunded liabilities, including Gov. Neil Abercrombie, who has called it “a crisis.”

Randy Iwase, chairman of the Hawaii Tax Review Commission, has warned of a “fiscal crater” unless the state changes its tax policy.

Solomon said the governor’s budget and finance director, Kalbert Young, alluded to the problem in recent testimony before Senate Ways and Means. So Civil Beat gave him a call.

“States can’t file for bankruptcy — the U.S. Constitution prevents it, unlike cities and municipalities,” he said Thursday. “But I have said, and maybe she picked that up, that the state will be effectively bankrupt.”

Young explained that the projection is based on the state’s balance sheet — its net assets versus liabilities. Hawaii has been losing net assets since about 2006, a problem “significantly driven by unfunded liabilities” because the state “does not pre-fund its liability.”

Do The Math

Currently, the state’s total net assets are about $1.6 billion, but the amount of unfunded liability each year is $520 million and growing.

“So, if you do the math, in three years bascially we should expect the state to have a negative balance sheet,” he said.

Here, however, Young said it is important to understand some context. Remember, states can’t file for bankruptcy.

“The state can’t really build assets,” he said. “You have a mature government. If we were a private company or corporation, yeah, we could go bankrupt when this thing goes negative. But you have to understand that when the balance sheet goes negative, nothing (happens). It’s not like we are going to close doors or have the government shut down.”

Chad Blair

Gov. Neil Abercrombie and Kalbert Young.

Young continued: “Of course, there are investor implications, and the state would probably be downgraded credit wise. But we also won’t be the only state in this situation. Even California, whose economy rivals that of some second-world countries, when you look at the metrics, they don’t show very well either. … And that is part of the context and the reason why the state needs to address its growing liability issues.”

In this, Young agrees with Solomon and many other lawmakers that something must be done to deal with unfunded liabilities.

To that end, the House Finance Committee this week approved a state budget that includes $205 million over the next two fiscal years for the health and pension funds.

“We proposed it, and Rep. Sylvia Luke saw the reasonable rationale and has preserved it in the (House draft),” Young said, adding that he hoped Sen. David Ige’s Ways and Means committee would follow suit.

Still, while $100 million is a lot of money for our state government, it represents only 20 percent of the annual contribution needed to meet its liability.

“Looking into the long term, we have to step up and over time get to a place where it is over 100 percent,” said Young. “You can’t get there overnight, but that is what this $100 million represents. So, over time let’s move in that direction. That is the marker the governor is laying down, and it looks like the Legislature is starting to support it.”

BOTTOM LINE: Regarding Solomon’s statement, the claim contains elements of truth; if Hawaii were a business, it would indeed be heading quickly toward insolvency. But the claim is also missing important information: States can’t file for federal bankruptcy. Therefore, this Fact Check is HALF TRUE.

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