But Shouldn’t We Do Something About The Two Gorillas In The Bar?

by Tom Yamachika, Interim President, Tax Foundation Hawaii

Often I am asked to summarize what’s going on with the tax bills in the current legislative session. I usually say that it’s obviously an election year, because a very large number of the tax bills moving are attempts to give money back, usually in the form of credits or incentives, as opposed to “revenue enhancers,” which is what politicians often call attempts to grab even more of your hard-earned dollars. There are, in addition, quite a few bills designed to give relief to the poor or the elderly through our tax system, mostly through tax credits of one kind or another.

And why not? The Governor is trumpeting that under his watch there has been an economic turnaround. “Upon taking office,” says a booklet called Abercrombie Administration Accomplishments 2010-2013, “the Administration faced a budget deficit of $220 million at the end of 2010. In response, it established responsible fiscal management practices while creating a sustainable financial plan for Hawaii’s future. As a result, the State of Hawaii ended fiscal year 2013 with a positive general fund balance of approximately $844 million.”

That sounds a little like a guy getting up in the middle of a bar and saying, “Hey! I have money in my pocket and I’m feeling good. Let the good times roll!” and then buying everyone in the bar a round of drinks. But is tossing all that cash around a responsible thing to do, especially if he is up to his eyeballs in debt?

The budget deficit, and the positive general fund balance, are measures of how much money the state had in its pocket on given dates. We need to remember that these measures need to be considered along with other things, especially what the state owes, in assessing its long-term sustainability.

So here is where the gorillas come in. The state long ago agreed to pay post-employment benefits to its workers. ERS, or Employees’ Retirement System, represents the retirement benefits. EUTF, the Employer-Union Health Benefits Trust Fund, represents the medical benefits. At June 30, 2013, ERS had an “unfunded actuarial accrued liability” of about $8.4 billion. For EUTF, the number was about $18.2 billion. Those numbers represent the present value of what we taxpayers owe for these future benefits. In comparison, the total annual state general fund budget is $5.5 billion.

Compare this with the City of Detroit, Michigan. Detroit has a population of about 4 million counting its suburbs, and it had a long-term debt of $18.5 billion when it filed for, and late last year was ruled eligible for, bankruptcy! Hawaii is smaller, and its debts are bigger. So let’s make no mistake: the gorillas were able to bring down governments bigger than ours. Maybe we’d better pay attention to them.

I don’t know about you, but if I find out that I have more money in my pocket than I expected, I take some of it and pay down my mortgage a little. So shouldn’t we use a bit of the money the state has in its pocket and set it aside to deal with these issues? It’s not that we don’t sympathize with the poor – we agree that Hawaii is taxing people deeper into poverty and that needs to be fixed. It’s not that we are ridiculing the idea of stimulating business – certainly, if we can grow the engine that’s feeding us, there will be more to throw around. There are many other worthy causes, too.

Okay, maybe we can’t resist the temptation to jump up in the middle of the bar and throw money around…but at least when we’re doing so, let’s toss a few bananas toward those two big fellows in the back of the room.

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