Former Hawaii Gov. Ben Cayetano has a knack of getting people to come to his defense.

During a televised debate last week, Cayetano and fellow Honolulu mayoral candidate Kirk Caldwell squared off over pension funds and other unfunded liabilities.

Caldwell claimed Cayetano skimmed $350 million off the top of the state’s Employees’ Retirement System while he was governor to help balance his budget. As a result, Caldwell said the ERS system now has a multi-billion dollar deficit, something that wouldn’t exist had Cayetano not taken the money to give out retroactive pay raises.

But just one day after Caldwell made those remarks the head of the ERS emailed Cayetano telling him the $8 billion unfunded pension fund liability wasn’t his fault.

In fact, in his email, ERS Administrator Wes Machida told Cayetano that he was simply using a law that had existed since 1967 that allowed the state to take “excess earnings” from the fund. Over a 36-year stretch, he said, $1.7 billion had been diverted from the fund, and had that not happened the $8 billion unfunded liability might not exist.

“I saw the debate last night and was disappointed to hear how my quote was being used,” Machida told Cayetano in the email.

He added, “I am sorry that the ERS and my statement is being used in this election, as it was never my intention that it be used in any other way but to communicate the significance of the situation and the need to implement appropriate solutions to ensure the sustainability of the ERS.”

This isn’t the first time someone has stuck up for the former governor in this election.

In July, Bob Watada, the former head of the Hawaii Campaign Spending Commission, flew in from Oregon to dispute allegations made by the Pacific Resource Partnership in attack ads targeting Cayetano for receiving illegal campaign contributions and being involved in a pay-to-play culture. At the time, Watada was joined by state Rep. Della Au Belatti as well as other former Campaign Spending Commission officials.

As was the case then, the Cayetano campaign is now using the statements from Machida to discredit his attackers. In a press release, Cayetano uses much of Machida’s email to disprove Caldwell’s claims that he raided the ERS funds.

“It’s sad,” Cayetano said in the release. “Kirk should have known better, but I guess he wants to win no matter what the cost to his personal integrity.”

Sticking to the Story

Caldwell, meanwhile, continues to stand by his accusations from the debate, saying in a statement there is “overwhelming evidence” that Machida accurately described Cayetano’s involvement in raiding the ERS fund.

“The quotes that I used referring to Wes Machida came from a Hawaii Business
article,” Caldwell said in the statement. “As far as I am concerned, Wes can disavow what he said, but the bottom line is that he said it.”

Caldwell is referring to a story in the February 2011 edition of the Hawaii Business Magazine about the ERS liability in which Machida is discussing the excess earnings that were used to help balance the budget.

Here’s the segment he cites from that article:

(Machida) ascribes most of the increase (in the state’s unfunded liability) to an old rule that allowed legislators to seize any annual earnings over 8 percent and apply them to the state’s (actuarially required contribution). In 2001, the worst year, the state used approximately $150 million of these “excess” earnings to help balance the budget. Between 1999 and 2003, according to Machida, more than $350 million in excess earnings were diverted from the pension system.

“In 2004, with the assistance of (then) Governor Lingle, we introduced legislation to take that away,” Machida says. But the damage has been done. “If that money had not been taken,” he says, “the system today would be almost fully funded.”

But in Machida’s email to Cayetano he says that quote was taken out of context. Here’s what he had to say:

My quote was meant to be applied to the following:

Over a 36-year period since 1967 through 2003, excess earnings of approximately $1.7 billion was used to credit the employers’ contributions. Our Actuary had indicated a few years ago that had we been able to keep the excess earnings, we would be close to fully funded (as long as it wasn’t used to increase benefits).

Over the years since 1967 until this past fiscal year, the ERS averaged over 8 % in investment earnings (this performance includes the excess earnings that was applied to the employer contributions). While public pension funds and other investors have recently experienced 2 significant down years over the past decade, the excess earnings could have cushioned these down years and enabled the ERS to be at a better funded status. Another reason for the increase in the unfunded liability over the past decade is the reflection of longer life expectancies. Hawaii members have been living longer, in fact, the median life expectancy age for female teachers is 90.

As a result, in my opinion, you are not responsible for the ERS’ large unfunded liability.

Civil Beat talked with Machida on Monday and he reiterated that Caldwell had taken his statements out of context.

Caldwell Raids OPEB

While it doesn’t appear Caldwell is willing to back off his assertion that Cayetano was in the wrong for snagging money from ERS fund, he might have his own questions to answer about his time at the city.

At the KITV/Civil Beat debate, Caldwell took credit for being part of an administration that put tens of millions of dollars into a reserve fund to pay for the future costs of providing other post employment benefits to retirees. Like the ERS pension fund, OPEB also carries a large unfunded liability that must be accounted for by local governments.

But even though Caldwell vowed to put more money into the fund, he’s also guilty of dipping into it.

In Fiscal Year 2010, when Caldwell was former Honolulu Mayor Mufi Hannemann’s right hand man, the administration took $53 million from the OPEB reserve and put it toward its regular contributions to the Hawaii Employer-Union Health Benefits Trust Fund. This in turn allowed more money to be left in the city’s general fund, which ended up carrying a surplus.

The following year Mayor Peter Carlisle’s administration began funding the OPEB reserve fund, and over the past two years has socked away $83.5 million.

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