Financial State of the Cities 2023

from Truth in Accounting, February 7, 2023

This year's report highlights the volatility and risk surrounding pension plan assets and corresponding pension liabilities. We found that for most cities in the fiscal year 2021, pension assets increased dramatically because of strong markets. The resulting pension liability and money needed to pay bills decreased equally dramatically. Taxpayers can only hope that when pension plan investments need to be sold to pay for benefits, the market value of those investments will be high. If not, taxpayers will be on the hook to pay higher taxes to cover the promised benefits.

To download the full report on the financial condition of the 75 most populous cities, click here.

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Honolulu

(73) Honolulu’s elected officials have repeatedly made financial decisions that left the city with a debt burden of $3.3 billion. That burden came to $26,100 for every city taxpayer. This is a slight improvement over last year’s burden of $31,700. This improvement was largely due to federal government stimulus money and record gains in the investment markets affecting their pension assets. However, those gains have already evaporated, which will be reflected in next year’s report. Honolulu’s financial problems stem mostly from unfunded retirement obligations that have accumulated over the years. The city had set aside only 65 cents for every dollar of promised pension benefits and 29 cents for every dollar of promised retiree health care benefits. Honolulu remained in dire fiscal shape, earning it an “F” grade from Truth in Accounting.

Honolulu, HI--In Bottom Three for Fiscal Health

The Truth

• Money Needed to Pay Bills $3.3 billion
• Taxpayer Burden $26,100
• Financial Grade F
• Ranking 73 out of 75

Financial State of Honolulu

After the COVID pandemic, in large part due to unrealized gains in stock market valuation of its pension investments and federal government stimulus money, Honolulu’s financial condition appeared to improve. Despite apparent improvements, Honolulu had a Taxpayer Burden of $26,100, earning it an “F” grade from Truth in Accounting.

The city’s pension liability is calculated by subtracting earned and promised benefits from the market value of pension assets. Based on an exceptionally good year in the markets in 2021, the pension assets’ values were high. The result was a dramatic decrease in Honolulu’s pension liability and a corresponding decrease in its money needed to pay bills. Even with inflated pension asset values, the city had set aside only 65 cents for every dollar of promised pension benefits and 29 cents for every dollar of promised retiree health care benefits.

Honolulu’s elected officials have repeatedly made financial decisions that left the city with a debt burden of $3.3 billion. That burden came to $26,100 for every city taxpayer. Honolulu’s financial problems stem mostly from unfunded retirement obligations that have accumulated over the years. In 2022, markets produced negative market returns and federal COVID relief waned. These conditions may increase the per taxpayer Tax Burden. Honolulu could struggle to maintain current levels of government services and benefits without further negative impact on its financial health.

The data included in this report is derived from Honolulu’s 2021 audited Annual Comprehensive Financial Report and retirement plans’ reports. To compare prior years and other cities’ financial, demographic, and economic information, go to Data-Z.org.

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Honolulu’s Financial Breakdown

Fast Facts

• Honolulu needed $3.3 billion to pay its bills, which was $565.3 million less than in 2020.
• Mostly due to high, short-lived gains in the value of pension plan assets in 2020, pension debt decreased by $685.5 million.
• Covid-related funds and improved real property tax revenues contributed to Honolulu’s financial condition.

Grade F

Bottom line: Honolulu would need $26,100 from each of its taxpayers to pay all of its bills, so it has received an “F” for its finances. According to Truth in Accounting’s grading scale, any government with a Taxpayer Burden greater than $20,000 receives an “F.”