Updated 6:30 p.m., 7/20/2016

The Hawaii Legislature voted Wednesday to override Gov. David Ige’s veto of a bill that provides severance payments or pension benefits to unionized public workers at three hospitals in Maui County that are being privatized by Kaiser Permanente.

It’s unclear where exactly the money is going to come from or whether the state pension system will lose its tax-exempt status as the administration has cautioned. Estimates range from $25 million to $77 million will be needed to implement the law, but the bill provides no appropriation.

The Senate voted 18-4 to override the governor’s veto of Senate Bill 2077 and the House followed suit later in the afternoon with a 43-3 vote in support. 

Senator Rosalyn Baker rises in support of veto in special session at the Legislature. 20 july 2016
Sen. Roz Baker speaks in support of overriding the veto during a special session of the Legislature on Wednesday. Cory Lum/Civil Beat

In a statement Wednesday evening, Ige said his administration’s concerns over the bill remain unchanged: the bill jeopardizes the Employees’ Retirement System’s tax-exempt status; the bill does not appropriate funds for lump-sum cash payments for affected employees; and the bill adds an additional unfunded liability of about $17.2 million to the ERS and $18.4 million to the Employer-Union Health Benefits Trust Fund, which puts the state’s long-term financial position, along with its bond ratings in jeopardy. Bond ratings determine what the state pays in interest on borrowed funds.

“Our primary concern is and always has been the health and well-being of Maui’s residents and visitors as we work to privatize Maui region hospitals,” Ige said. “We are committed to a successful transfer and transition to a new Maui health care system for all stakeholders, which includes our employees. However, this transaction must be done correctly for the common good.”

In a passionate floor speech, Sen. Roz Baker — who represents part of Maui and is the chair of the Commerce, Consumer Protection and Health Committee — said overriding the governor’s veto was the only way to ensure quality health care services, provided by the hospitals, continue uninterrupted during the transition.

“I’m thinking about the overall health of all our residents and visitors who come to Maui,” she said.

The Legislature convened in special session last week after the governor’s July 11 veto. The issue has gathered steam in recent days, pitting public-worker unions against the governor while pressuring lawmakers to act.

United Public Workers sued the state to stop the privatization, arguing that the union’s members’ contracts were still in effect until next June. The 9th Circuit Court of Appeals ordered the state to temporarily stop its transition activities in May, but later allowed them to continue as negotiations were moving forward toward a settlement. 

Baker said during a press conference following the veto override that the court’s action was “crazy,” adding that the judges “don’t understand health care.” She later added that “probably the biggest lesson learned” from this experience is making the transition effective at the end of a contract cycle.

Speaker Souki Rep Presser1. 20 july 2016
House Speaker Joe Souki answers reporters’ questions after the override vote Wednesday. Cory Lum/Civil Beat

House and Senate leaders said Wednesday that the governor has reached a tentative settlement agreement with UPW and that between that settlement and the veto override the privatization should be good to go.

Sen. Gil Keith-Agaran, chair of the Judiciary and Labor Committee, said the Legislature’s action and settlement with UPW also “takes off the table” a lawsuit that the state’s biggest union, the Hawaii Government Employees Association, has threatened to file.

HGEA Executive Director Randy Perreira said in a statement Wednesday evening that the union won’t be filing a lawsuit at this time.

He said the bill provides “reasonable benefits” to the hospital employees by providing a modest severance payment or early retirement options for career employees who are close to reaching retirement milestones.

“Since the privatization law passed in 2015, HGEA’s goal has been to work collaboratively with legislators to provide a fair resolution for the employees and to ensure continuing health care for the residents and visitors of Maui County,” Perreira said. “We are satisfied with today’s outcome and will not be pursing any legal remedies at this time.”

While Keith-Agaran said in a statement the governor “has successfully resolved the UPW lawsuit,” Ige indicated that’s not quite yet the case. The governor said, “We are close to an agreement.”

Of the 1,400 to 1,500 unionized hospital employees affected by the privatization, about 900 of them belong to HGEA. 

Legislators were working earlier this week on an amendment to the bill that would have allowed up to $25 million in severance payments to the workers who are at risk of losing their jobs once the state-controlled hospitals — Maui Memorial Medical Center, Kula Hospital and Lanai Community Hospital — transition to private control under Kaiser Permanente. The draft amendment, which was never introduced, took the pension benefit out of the bill.

Senate President Ron Kouchi speaks to House Speaker Souki during Senate recess. 20 july 2016
Senate President Ron Kouchi speaks to House Speaker Joe Souki moments before the Senate voted to override the governor’s veto. The House followed suit later in the afternoon. Cory Lum/Civil Beat

House Majority Leader Scott Saiki, who worked to craft the amendment, had hoped that a compromise bill would help the workers while alleviating the governor’s concerns.

Saiki said Ige was fixated on resolving the UPW lawsuit, whereas the Legislature had been looking to resolve all issues surrounding the privatization.

House Speaker Joe Souki said in a press conference after the override vote that the amended bill was perhaps “ahead of its time,” and that the governor was not ready to receive it.

Souki acknowledged that it would be “kind of difficult” for Ige to implement the law, since the bill provided no money, but added that the governor has the power to move funds around.

Sen Keith Agaran answers questions with Sen Ros Baker and Sen English. not pictured. 20 july 2016
Sen. Gil Keith-Agaran answers reporters’ questions as Sen. Roz Baker and Sen. Kalani English, not pictured, listen. Only the three Maui senators were made available for the press conference. Cory Lum/Civil Beat

Sen. Jill Tokuda, chair of the Ways and Means Committee, said the administration has the power to shift funds within the Budget and Finance Department or Hawaii Health Systems Corp., which oversees the state-run hospitals, to cover the cost of implementing the law.

She added that it’s likely the governor will have to request an emergency appropriation when the next legislative session starts in January to “backfill” the expenses, which she said remain a “moving target.”

“It depends what is offered and what people take, whether it’s a severance or early retirement,” she said, noting that the administration will need to take a “really creative approach.”

Ultimately, Saiki said, the governor’s office “needs to take the leadership.”

Sen Laura Thielen rises in opposition to bill. 20 july 2016
Sen. Laura Thielen speaks in opposition to overriding the veto, pointing at the risk of the public pension system losing its tax-exempt status. Cory Lum/Civil Beat

Ige has also said the bill was too generous to the workers, would cost the state as much as $60 million and deepen Hawaii’s $8.77 billion unfunded liability.

It was the concern over the ERS losing its tax-exempt status, an issue that only came to light in recent weeks, that prompted some senators to vote against the override.

“The Legislature right now is stuck in a no-win situation,” Sen. Laura Thielen told her colleagues in explaining her vote against the override.

She referenced the “11th-hour letter” from the ERS about jeopardizing its tax-exempt status with the Internal Revenue Service and said the system is in such “terrible shape” right now that losing that status can’t be risked.

House and Senate leaders downplayed concerns over losing the tax status with the IRS, saying they have obtained other legal opinions that have assured them it’s not an issue.

Governor David Ige veto presser2. 12 july 2016
Gov. David Ige says his concerns over the bill remain unchanged, and that his administration will be reviewing its options. Cory Lum/Civil Beat

Kelii Akina, president and CEO of the Grassroot Institute, called the decision to override the governor’s veto “irresponsible.”

“The veto override is an irresponsible action by legislators that will hurt the Employees’ Retirement System at a vulnerable time and unfairly hurt taxpayers in the process,” he said in a statement. “The high price tag will also have a detrimental effect on the future transition of labor in our failing state hospital system.”

He said if the ERS loses its tax-exempt status, the ERS will owe taxes on the pension fund that will ultimately have to be paid by taxpayers.

In addition to Thielen, Sens. Les Ihara, Donna Mercado Kim and Sam Slom voted against the override. Sens. Russell Ruderman, Brian Taniguchi and Breene Harimoto were absent.

In the House, Reps. Romy Cachola, Calvin Say and Cynthia Thielen voted no. Reps. Sharon Har, Sam Kong, James Tokioka and Ryan Yamane were absent.

Ige said the next steps for his administration are: conferring with the attorney general to assess and evaluate the impact of the veto override; continuing to work in good faith with the UPW to bring resolution to the federal court injunction and to finalize the details; and continuing to work on a smooth transition in order to provide a new system of health care for Maui.

“This is an historic, complex multi-stakeholder transformation and we are optimistic that we will resolve all unforeseen issues,” the governor said in a statement.

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