Senators rejected a House lawmaker’s last-ditch effort Friday to fundamentally change a 2013 law requiring the state and counties to pay down the multi-billion-dollar unfunded liability in retiree health care benefits promised to thousands of public workers.

Sens. Jill Tokuda and Gil Keith-Agaran rejected the pleas of Rep. Romy Cachola to pass his version of House Bill 1356, a measure he believed would have freed up billions of taxpayer dollars that could be put toward other programs and projects, such as education and rail transit.

The conference committee ultimately deferred the bill until at least next year, which means the part the Senate did support — allowing the Hawaii Employer-Union Health Benefits Trust Fund to invest money with the same degree of flexibility as the Employees’ Retirement System — won’t happen either. 

Reps. Scott Nishimoto, left, and Romy Cachola listen to Sen. Gil Keith-Agaran, foreground, during a conference committee meeting Friday.

Cory Lum/Civil Beat

Friday marked the deadline for conference committees to pass bills on to the full House and Senate to vote on next week.

Gov. David Ige supported the Senate keeping the current pre-funding plan in place, something he voted on himself when he was a state senator two years ago.

Supporters of the current plan point at how credit agencies look favorably upon pre-funding health benefits instead of taking a strictly pay-as-you-go approach as the state had done until 2013. If the state’s credit ratings go up, money can be borrowed at better interest rates, which saves taxpayers money.

The state, which is responsible for roughly three-fourths of the unfunded liability for Other Post-Employment Benefits, has put down $217 million over the past two years and expects to ramp up to an estimated $500 million annual pre-funding payment by 2018, the point at which the state and counties must be making 100 percent of their required pre-funding contributions. 

Cachola doesn’t believe the state can afford the 2013 mandate. His proposal involved saving up to $2 billion through pre-funding payments and putting the investment income interest generated from that account — projected at $140 million annually — into a new rate stabilization fund that would cover any shortfalls and prevent frequent increases in premium contributions.

His version of the bill eliminated the requirement for the state and counties to pre-fund retiree health care benefits as long as there was at least a combined $2 billion in the separate public employer OPEB accounts. Cachola said accounting rules don’t require pre-funding and just taking a pay-as-you-go approach at that point would meet the state’s needs.

Cachola maintained that the state and counties will have to raise taxes or cut services to afford the pre-funding requirement. But Ige said it’s built into the six-year financial plan and is something Hawaii must do.

Wes Machida, the state budget director and former head of the ERS, told lawmakers in April that Cachola’s proposal would not reduce the amount of time it will take to pay down the unfunded liability, which is already expected to take almost three decades.

The conference committee working to reach an agreement on House Bill 1356 started meeting at 10 a.m. Friday. They reconvened through the day, eventually deferring the bill at 5:30 p.m., just a half hour before the deadline.

Keith-Agaran had given Cachola a strong sense of that inevitability when the committee met at 3 p.m. but Cachola held out for a “miracle” that didn’t come.

Carl Campagna, Cachola’s session manager, said Friday evening that they will work on the bill in the interim and try again next year.

• Read “Pension Promises,” Civil Beat’s special report on Hawaii’s pension and retiree heath care systems, the financial problems they face and how that affects everyone in the state.