Hawaii’s 3 Growing Liabilities: Pensions, Health Care, Debt
Hawaii’s budget director says his department needs an increase in funding of 9 percent and 18 percent in 2012 and 2013, respectively, over current levels — most of it to cover increasing pension and health benefits costs for active state employees, retirees and their dependents.
Kalbert Young, interim director of the Department of Budget and Finance, said Thursday the department is requesting a $1.78 billion budget for fiscal 2012 and a $1.92 billion budget for 2013. That compares to a $1.63 billion departmental budget approved for the current fiscal year, which ends June 30.
“Our big cost areas are all on the benefits side, and those are the areas that are increasing,” Young told the Senate Ways and Means Committee.
Young’s department makes up the largest percentage of the state’s general fund spending — 31.5 percent — because it handles employer contributions for health and life insurance (provided by the Hawaii Employer-Union Health Benefits Trust Fund) and retirement benefits (through the Employees’ Retirement System).
Young said the bulk of the department’s budget — 97.3 percent — goes toward those two funds as well as debt service, while less than 3 percent accounts for direct operation costs.
He said that 97.3 percent breaks down into the following:
- 38 percent for retirement expenses
- 30 percent for health-care premiums
- 31 percent for debt
Here’s a look at those three areas:
Pension
The cost to cover retirement benefits is estimated to go up to $681 million in 2012 and $674 million million in 2013 — up from $611 million in the current fiscal year. This includes payments for Department of Education and University of Hawaii employees.
Those increases don’t address unfunded liability issues: the funding gap between what the ERS currently has in its pension fund and what’s needed to cover future payments is at $7.14 billion, up $900 million from the previous year.
Because ERS contributions are based on payroll percentages, Young said the increases are related to higher salaries once furloughs end this June. Employer contributions are based on the following percentages: 19.7 percent of compensation for police and firefighters and 15 percent for all other state and county employees.
He said the department plans to submit proposed measures to lawmakers to help address the underfunded retirement fund.
“There will be several measures, or concepts, that will likely impact or address the unfunded liability issue, but overall, a resolution is a much bigger discussion that will involve a much more comprehensive submittal,” he told lawmakers. “You will be getting some measures that will take us a step in that direction.”
Health-care Benefits
The cost to cover health benefits is expected to increase to $486 million in 2012 and $528 million in 2013, up from $479 million for the current year. (These do not include DOE and UH employee costs.)
Young said the increase is a combination of higher premiums and new enrollments. He said health benefit costs “aren’t likely to go down in future years.”
In addition, Young said a separate budget request will be coming via “governor’s message” from Gov. Neil Abercrombie to fund a Dec. 23, 2010, agreement to increase the state’s share of health costs to 60 percent from 50 percent. That is expected to cost $18 million this year to cover the period from March 1-June 30, and another $54 million in both 2012 and 2013.
Sen. Donna Mercado Kim asked if the state could afford to sustain a 60-40 ratio.
“At current costs, we’re projecting a deficit,” Young said. “A 60-40 assumption will reflect a deficit.”
Debt Service Payments
Debt payments are projected to increase to $564.1 million in 2012 and $668.3 million in 2013 — up from $493 million this year.
Young said the increases are “due to previous restructuring of debt service and additional bonds issued for (capital improvement projects).”
