Bride of Frankenbill!

by Tom Yamachika, President, Tax Foundation Hawaii

We wrote last week about House Bill 58, a “Frankenbill” made from bits and pieces of other bills. By putting those pieces into a bill that is still alive at the Legislature, those pieces are given new life.

It turns out that our lawmakers are not stopping at just one Frankenbill. Let’s look at House Bill 468.

This bill is called “Relating to the Hawaii Employer-Union Health Benefits Trust Fund.” In its present form (House Draft 1), it would take away Medicare Part B reimbursement for employee spouses for employees hired on or after July 1, 2021. At least one of the public worker unions testified against it. So, although it passed the House, the bill languished in the Senate.

At the same time, an Administration bill from the Department of Budget and Finance, Senate Bill 1087 / House Bill 933, would have suspended existing laws calling for annual required contributions to the Employer-Union Trust Fund for fiscal years 2024 and 2025. House Bill 933 received no hearing in the House and died relatively early in the session. The Senate bill sailed through the Senate and crossed over to the House, where it received no hearing and died.

Now, the Senate has published a proposed Senate Draft 1 of House Bill 468 that looks a whole lot like Senate Bill 1087 without any of the material that House Bill 468 used to have. By the time this article goes to press, the Senate Committees on Labor, Culture and the Arts and Ways and Means would have heard the bill and made the switcheroo.

Some of you may have heard the term “gut and replace.” That term is used to describe how a bill’s contents are entirely replaced with material bearing little if any resemblance to what the bill used to say. It is one form of Frankenbill, and that is indeed what we have here.

Why is this bill so critical? Imagine what would happen if you had a mortgage and then stopped making payments on it for a couple of years. When you finally got around to making payments again, the debt would still be there and the interest would have racked up. Paying off the mortgage would probably take quite a bit longer than the two years that were deferred. If, for example, you had a $500,000 mortgage at a 30-year fixed rate of 4%, you would be making principal and interest payments of $2,387. If you stopped making payments after year 5 and took a break for 2 years, your balance due would grow from $451,000 to $487,000, after which you would need 340 more monthly payments at the same amount, or 28-1/3 years, to pay off the loan. That would mean you would have to make 3 years and 3 months of extra monthly payments.

What is EUTF? The State of Hawaii has promised to provide health benefits to its long-time employees for the rest of their lives. EUTF is a fund set up to fulfill that promise. According to the most recent actuarial report from EUTF’s website, the present value of the benefits the State has promised to its eligible retirees exceeds the expected value of the plan’s assets by $11.5 billion. The $11.5 billion is like a debt that the State and its taxpayers must pay.

The Medicare Part B benefits, which House Bill 468 addressed before being turned into Bride of Frankenbill, accounted for $3.23 billion out of the $15.4 billion in actuarial accrued liability.

Lawmakers, we ask again – what can we afford to do, or not do?