Hawaii voters have an opportunity to change the state’s constitution in ways that would affect how surplus tax revenues are used and the threshold for jury trials in civil cases.

One of the proposed amendments would give lawmakers additional options for excess general fund revenues, which Hawaii has had a lot of lately. The state reported a record $1 billion surplus for fiscal 2016, which ended June 30.

The constitution now requires the state — whenever it has a general fund balance exceeding 5 percent of general fund revenues two years in a row — to put that surplus into an emergency reserve fund or give taxpayers a refund or credit.

Chair of the Ways and Means committee Jill Tokuda. REIT. 18 feb 2015. photograph Cory Lum/Civll Beat
State Sen. Jill Tokuda says she introduced the bill for the proposed constitutional amendment to give the state flexibility in how it uses surplus general fund revenues. Cory Lum/Civil Beat

General fund revenues were just over $6 billion last fiscal year, making the 5 percent trigger roughly $300 million.

If voters pass the amendment, the state would also be able to use its surplus to make pre-payments on general obligation bond debts or put the money toward health and retirement benefits promised to thousands of public workers.

Sen. Jill Tokuda, who chairs the Ways and Means Committee, said she introduced the bill to put the amendment on the ballot to help the state pay off its debts and liabilities.

“Like paying a little more on your mortgage or credit card when you have the means, this option will result in long-term savings for the state as a result of decreased payments going forward,” she said.

Budget Director Changes His Mind

Hawaii has one of the highest unfunded liabilities in the country at roughly $20 billion when it comes to pensions and other post-employment benefits (OPEB).

The state has taken a pay-as-you-go approach to the benefits for about 120,000 beneficiaries instead of setting aside enough money to ensure the benefits promised now can be kept after the worker retires.

State Director of Finance Wes Machida, who used to head the state pension system, urged lawmakers this year to pre-fund the health fund 100 percent in order to save more money in the long term.

The Legislature did increase the pre-funding amount, but only to 80 percent.

Even then, Tokuda said taking OPEB pre-funding up to 80 percent would save the state $188 million over the next 25 years.

Director of Finance Wes Machida says the 89-day hiring system limits funding into the state Employees’ Retirement System.
State Director of Finance Wes Machida says he supports the intent of the constitutional amendment but has noted that the state can already pre-fund its debt obligations and unfunded liabilities. Cory Lum/Civil beat

Machida was skeptical of the proposed amendment initially, telling lawmakers that they did not need to change the constitution to make pre-payments for bond debt service or unfunded liabilities.

“We believe that expanding options for relief from excess revenues to include pre-payment of general obligation debt service, pension, or other post-employment benefit liabilities would dilute and diminish the effect of Article VII, Section 6,” he said in his February testimony, referring to the relevant section of the constitution.

“The Legislature can currently pre-fund these obligations by appropriating funds,” he said.

“It heightens the awareness of the unfunded liabilities and the debt that we are obligated to pay.” Wes Machida

But over the next two months as Senate Bill 2554 moved forward in the Legislature, Machida came around to support the bill’s intent. He was the only person to submit written testimony.

“It heightens the awareness of the unfunded liabilities and the debt that we are obligated to pay,” he said last week.

The bill went on to pass unamended with only Republican Rep. Gene Ward voting against it.

“It’s reneging on the 1978 Constitutional Convention,” Ward said, referring to a change in the constitution that required excess revenues to go back to taxpayers.

“It doesn’t need to be done,” Ward said. “It’s a political gesture that we’re going to solve these problems.”

The state’s outstanding general obligation bond debt is roughly $6 billion right now, Machida said. Investors are getting paid twice a year, generally, on bonds the state sells them.

The loans pay for new state facilities and other capital improvement projects. The debt service is roughly $700 million annually, Machida said.

The Hawaii League of Women Voters said in its analysis of the amendment that its drawbacks include the state not being required to dispose of excess revenue into an emergency reserve fund, which provides fiscal stability and benefits the state’s credit rating, and that the state “could take financial risks or postpone making difficult budget decisions based on the prospect of using excess revenue to pre-pay pensions and debt service on bonds.”

The league’s breakdown of the bill also says the state should restructure the budget to meet state obligations rather than rely on using excess revenue, which might not be available every year.

On its list of advantages, the league also highlighted flexibility in using excess funds and reducing long-term costs. The league added that the public would have an opportunity to weigh in on the conditions for disposing of the excess revenue through the legislative process.

A spokesperson for the Hawaii Government Employees Association, the state’s largest public worker union with roughly 43,000 members, said the union is not taking a position on the amendment.

Jurors In Civil Cases

The other proposed amendment calls for increasing “the threshold value … for jury trials in civil cases” to $10,000 from $5,000.

In passing Senate Bill 143 last year to put the measure on the ballot, lawmakers said it may help ease the burden on Circuit Court dockets for matters not involving large sums of money. 

Lawmakers also said increasing the threshold value may lower the costs to the parties involved because a jury trial in Circuit Court can be more expensive than a bench trial in District Court, according to Senate Judiciary and Labor Chair Gil Keith-Agaran’s committee report on the bill, which he introduced.

Hawaii Elections Guide 2016

Rick Tsujimura of State Farm insurance was among the few who opposed the measure, citing concerns about the federal right to a jury trial. He noted that only two other states at the time had higher thresholds than Hawaii — Louisiana’s at $50,000 and Maryland’s at $15,000.

The League of Women Voters said in its analysis of the amendment that a higher threshold would mean fewer jury trials, which would lower costs to taxpayers and the parties involved while speeding up civil cases and unclogging court dockets.

But the league said drawbacks include taking away residents’ constitutional right to a jury trial because of the higher threshold. The league said the amendment also would give people the impression their rights are worth less because the amount at stake is less.

The league noted that opponents argue that increasing the use of alternative dispute resolution, such as arbitration and mediation, is already decreasing the number of civil cases going to trial.

“They’re basically solutions in search of problems,” Ward said of both constitutional amendments.

Stay plugged in to campaigns and candidates this election season with Civil Beat’s Hawaii Elections Guide 2016, your source for information on federal, state and local elections.

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