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The cost to cover pension and health benefits for Hawaii’s public employees is contributing to the state’s nearly $800 million budget shortfall over the next two years. And these costs could go up as union contracts covering most of the state’s 35,000 public workers expire June 30.

The state’s budget office on Tuesday estimated it will need an extra $70 million in fiscal 2012 and $62.5 million in 2013 to pay into the Employees’ Retirement System, over current levels. It also says it needs an additional $8 million in fiscal 2012 and $50 million in 2013 for employee and retiree health benefits premiums, over current levels.

For the current fiscal year ending June 30, the state budget included $375.33 million for the pension fund and $283.92 million for the Hawaii Employer-Union Trust Fund for health benefits for active and retired state employees.

These added expenses, as well as costs tied to increasing the state’s portion of health benefits starting in March, are among six the administration pointed to as responsible for raising the state’s budget by 6 percent and 8 percent the next two years, respectively. Kalbert Young, interim director of the state , shared the information at a joint briefing Tuesday morning before the Senate Ways and Means Committee and House Finance Committee.

The other three areas of increased cost are:

• $248.2 million in fiscal 2012 and $288.3 million in fiscal 2013 for Medicaid health care payments.
• $158.8 million in fiscal 2012-13 due to ending furloughs.
• $71.2 million in fiscal 2012 and $175.4 million in fiscal 2013 for general obligation bond debt service.

Gov. Neil Abercrombie last month proposed a two-year operating budget that calls for $10.87 billion in expenses ($5.57 billion from the general fund) in fiscal 2012 and $11.08 billion in fiscal 2013 ($5.75 billion in general funds).

Abercrombie last month agreed to increase the state’s contribution for health benefits to a 60-40 employer-to-employee ratio for unionized employees in the Hawaii Government Employees Association, United Public Workers, Hawaii State Teachers Association and University of Hawaii Professional Assembly. This agreement will cost the state an extra $18 million this fiscal year, and $54 million in each of the next two fiscal years.

Young said the state is facing “significant deficits” in general fund revenues. His office is estimating the following revenue shortfalls in order to maintain a positive $25 million balance in each of the next five years:

• Fiscal 2011: $72 million shortfall
• Fiscal 2012: $410 million shortfall
• Fiscal 2013: $362 million shortfall
• Fiscal 2014: $135 million shortfall
• Fiscal 2015: $4 million shortfall

Young took heat for Abercrombie’s “promises” to find new revenue streams. The governor previously has said new revenue would come from “retooling,” “reconfiguring” and “restructuring” the budget, but shared no specifics.

Young said the administration has assumed a $50 million “placeholder” for new program initiatives, but said he could not share specifics.

“When the governor says it he will retool and reconfigure — where will this come from because a lot of that has already been done?” asked Sen. Donna Mercado Kim.

Rep. Gene Ward also asked Young for any “hints of revenue enhancements” being looked at.

Young said the Budget and Finance Department and the Tax Department are doing a review for the governor to find “not just taxes and fees, but tax credits and exemptions.”

“I’m not prepared to share specifics,” Young said. “But we are looking at a myriad of opportunities well beyond the obvious.”

The Legislature will convene January 19, but Young told lawmakers that the budget office won’t have a comprehensive budget ready until mid March after it receives and reviews individual budgets from all state departments.

“You’re saying you want us to wait until mid March to get the governor’s plan?” asked Rep. Isaac Choy. “(That) scares me.”

Young replied that submitting departmental budgets piecemeal would be an option.