Hawaii's $9,000 million Deficit, not $850 million Surplus

by George L. Berish, Fellow of the Society of Actuaries

The Governor's $850 million Surplus is imaginary, given his $9,000 million Retirement System Deficit.

Calculating Hawaii taxpayers' unfunded liability for government worker pensions earned to date may be complex, but understanding it is not.

This graph tells  the short story since 2000:

· Top Line -- Taxpayers' Liability – about $21 billion.

· Bottom Line – Market value of earmarked assets -- about $12 billion.

· Top/Bottom Gap - about $9 billion -- Taxpayers' Unfunded Liability -- your share is about $9,000.

· Middle Line – Imaginary value of assets if the Board had earned what the Actuary "Assumed"

Longer story: As of June 30, 2000 the market value of assets earmarked to pay for pensions already earned by government workers was 103% of what taxpayers owed them. No Underfunding.

From 2000 to 2013, the Actuary recommended lawmakers "Assume" the Retirement Board would earn 8% - 7.75%, even though his 2010 Actuarial Experience Study (required by PL-88) estimated a less than a 50% chance of earing 7.75%.

And they didn't.  They averaged about 4.6% since 6/30/2000, i.e. over 3%/year short of the "Assumed" rate for 13 years.

Overestimating what the Retirement Board would earn means all decisions made by lawmakers, the taxpayers' collective bargaining representatives, bond rating agencies, and bond buyers were based on calculations that materially understated the System's cost and liabilities, by overestimating what could be earned.  It's that simple.  Given they were warned in advance, I believe that dishonest.  And it will get worse unless you believe the Board will average 7.75% for the next 30 years.

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Related: Act 100: How Hanabusa and Cayetano launched Hawaii Pension crisis