Gov. David Ige intends to defer $1.85 billion in scheduled payments to the fund that provides health benefits to public workers and retirees as part of his plan to cope with the colossal state budget shortfall caused by the COVID-19 pandemic.
A disclosure to bond investors published late last month sets out new details about Ige’s strategy for navigating the state budget crisis, which the administration is assuming will extend years into the future.
The Ige administration’s plans also call for borrowing as much as $750 million from the federal government this year, and imposing twice-per-month furlough days on tens of thousands of public employees.
All of those steps are designed to keep state government running at a time when state tax collections have sharply declined. Total state tax collections for last year and this year are expected to plummet by $2.2 billion, and are not projected to bounce back to 2019 levels until 2024.
A linchpin of the Ige plan involves deferring legally required annual payments into the Hawaii Employer-Union Health Benefits Trust Fund, which provides health coverage to active and retired public workers.
Under Ige’s proposal, the state would continue to provide hundreds of millions of dollars each year to pay for the “pay-as-you-go” annual premiums for public workers’ and retirees’ coverage, but would delay payments the state is supposed to make during the next five years to pre-pay some of the fund’s future obligations.
The state had been scheduled to make a $388 million pre-payment this fiscal year toward those future health care costs for public workers and retirees, but the legally required payment for this year is “being suspended pursuant to the Governor’s emergency order” to deal with the COVID-19 pandemic, according to the disclosure to investors.
Ige will seek the Legislature’s approval next year to suspend the payments for the next four years, according to the disclosure. The existing pre-funding payment schedule calls for transfers from the state general treasury to the EUTF ranging from $351 million to $381 million per year for the next four years.
Ige’s proposal to defer those payments was immediately panned by both House Minority Leader Gene Ward and the Grassroot Institute of Hawaii, which warned it will burden taxpayers in the future.
“He is proposing a new and huge boot to kick the can the farthest ever down the road, and has created unprecedented indebtedness for our future,” Ward said in a written statement.
Joe Kent, executive vice president for the fiscally conservative Grassroot Institute of Hawaii, described Ige’s plan as an example of “breaking a public trust.”
“Lawmakers should have been saving money. They were spending down a $1 billion surplus they had in 2017, and they were spending that down during the boom years, so now that it’s bust, it’s time to face the music and reduce spending,” Kent said. “There’s a lot of places to cut. They don’t have to do this.”
Kent said his own calculations suggest the state added a net of nearly 3,000 new state government jobs since 2015 — Ige took office in 2014 — and the state population is actually smaller than it was in 2015. He suggested the state eliminate those jobs to balance the budget.
The state has been contributing hundreds of millions of dollars each year to begin paying down the EUTF unfunded liability, and by now those contributions along with investment earnings have built up a pool of $2.27 billion. But the remaining EUTF unfunded liability for the state still stands at $9.5 billion.
It was actually Ige and House Finance Committee Chairwoman Sylvia Luke who led the effort in 2013 to mandate the health fund pre-payments. They worked together to pass Act 268 to reduce and eventually pay off the EUTF’s unfunded liability, and Ige said shortly after taking office he was determined to stick with that plan.
Luke said that in ordinary times, the Legislature would reject any proposal to defer years of pre-payments worth nearly $2 billion “because it was a commitment by the Legislature, and was signature legislation that both the governor and I passed” when Ige served in the state Senate.
But given the projected $2.2 billion decline in tax collections, “we are working with them to come up with alternatives,” she said. “I think that is kind of a last resort because it does add to the unfunded liability, and it is kind of not a good policy for us to defer,” she said.
“He is proposing a new and huge boot to kick the can the farthest ever down the road, and has created unprecedented indebtedness for our future.” — Rep. Gene Ward
“I do know that the governor is struggling with that because we — both of us — we look at it as our joint commitment to tackle this issue,” Luke said.
EUTF staff did not respond to a request for comment Friday on Ige’s proposal, but Luke said lawmakers met with EUTF representatives in recent months to discuss the administration’s plan.
“We were surprised that in their calculation, they said they can withstand about four to five years of deferral, but anything beyond that, it would have an impact,” she said.
Another major component of Ige’s budget plan involves borrowing $750 million this year from the Federal Reserve Board’s Municipal Liquidity Facility, a program set up to provide short-term cash for state and local governments during the crisis.
Lawmakers authorized Ige to borrow up to $2.1 billion from the MLF, but Ige has said it would make no sense to borrow billions under the program because the money must be paid back within three years.
Ige has already asked the public worker unions to agree to furloughs for state employees in most bargaining units, which essentially amounts to two unpaid days off per month, or a pay cut of 9.23% for tens of thousands of state employees.
The administration plans to begin the furloughs in December, and proposed that they last for up to four years. Ige has said the state aims to save about $300 million per year with the furloughs, but the public worker unions are opposing the plan.
The administration has begun discussions over proposed furloughs with the Hawaii State Teachers Association, which represents public school teachers and the University of Hawaii Professional Association, which represents the University of Hawaii and community colleges faculty and staff.
Discussions have also begun with the Hawaii Government Employees Association and United Public Workers in connection with proposed furloughs for members of units 1, 2, 3, 4, 6, 8, 13 and 14, which include blue-collar state workers, supervisory blue collar employees, supervisory and non-supervisory white collar employees, state education officers, administrative and technical employees in the UH system; state professional and scientific employees; and state law enforcement and ocean and water safety officers.
The unions consider the furlough discussions thus far to be informational meetings, and not formal negotiations between the two sides.
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