Grassroot Institute and State Finance Director Discuss Unfunded Liabilities

Agree that Act 268 is a significant step in the right direction

News Release from Grassroot Institute

HONOLULU, Hawaii—February 17, 2014—In a freewheeling conversation that covered topics as varied as the illusory nature of the state budget surplus and the demands of rail and similar projects on the state purse, Grassroot Institute President Keli'i Akina and State Finance Director Kalbert Young found areas of agreement in their concern over Hawaii's unfunded liabilities.

The interview was conducted by Think Tech's Jay Fidell and took place as part of Think Tech's regular video series on community issues. During the conversation, the group delved into the finer points of Hawaii's finances, with special consideration of how politicians and citizens should approach proposals to make use of the $844 million budget "surplus"--a term that Mr. Young emphasized gave a slightly inaccurate impression of the way that state finances operate. He and Dr. Akina agreed, however, that despite some concerns about how the surplus is being treated politically, it still represented a step in the right direction.

"The positive $844 million ending balance for the State is, admittedly, only one aspect of judging a healthy financial enterprise," stated Mr. Young. "But, as far as the State of Hawaii is concerned, I think it is good to have that as a positive aspect and it certainly is better than the state had just 3-6 years ago.  Fixing the state's financial condition will take years - decades, even - but it's got to start somewhere and I am glad that there are signs that that improvement has begun.  There still remains much work to do.

In the discussion of Hawaii's unfunded liabilities, Dr. Akina and Mr. Young found common ground in their concern over how to improve the financial health of the state. Mr. Young vividly described how the lack of state contribution to those liabilities in years past has  been "eroding" the state balance sheet, creating (if unchecked) the threat that the state could effectively go bankrupt. 

Grassroot has long advocated transparent accounting as part of its "best practices" in addressing unfunded liabilities--without that information, as Dr. Akina notes, "we're not working from a full set of books." Questioned by Dr. Akina on how the state balance sheet reflected the scope of the unfunded liabilities and Mr. Young was glad to point out that the State would be changing its practices in FY 2016 to reflect the entirety of the pension liability.

Dr. Akina, in turn, was happy to compliment the Administration on the positive step indicated by the passage of Act 268, which requires the state government to (gradually) budget for 100% of its OPEB obligations, beginning in FY 2015 at 20% of its liabilities and increasing yearly until the 100% figure is reached in FY 2019. Acknowledging that Grassroot Institute has been critical of many of the state's fiscal practices, Dr. Akina, called Act 268, "something very good," and (while not as bold a plan as some might wish), "a good step," towards resolving our pension liability.

Dr. Akina and Mr. Young also found themselves in accord over their concerns that this promising step towards fiscal responsibility not be derailed by future lawmakers and politicians. Acknowledging that addressing the problem is not the work of a few years, but of decades, Mr. Young believed that the trust fund would be safe from raiding but posed the rhetorical question as to whether, in a future economic downturn, "the state [will] still have the fortitude ... to continue to contribute."

Dr. Akina shares these concerns, and states that, "We are happy to see that the state is finally taking real--if small--steps to secure its own continued financial health, averting the possibility that Hawaii becomes a cautionary tale of financial mismanagement. Mr. Young's clear-eyed acknowledgment of the challenges we face gives me hope that the Hawaii we pass on to our children will be transparent, accountable and financially sound. To ensure that, Grassroot Institute of Hawaii will continue to advocate for best practices in accounting and finance and a fiscally responsible state government."

Mr. Young will be addressing an upcoming Grassroot Institute luncheon on March 17 at 10:30 am. The event is open to the public. For more information, contact the Grassroot Institute of Hawaii at info@grassrootinstitute.org or 808-591-9193.

You may watch the interview in its entirety at http://youtu.be/IiDHamBeqc8.

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